BOUGHT WITH THE INCOME FROM THE SAGE ENDOWMENT FUND THE GIFT OF Di^nrs W. Sage iSgi Air^.3.ff^ J.7.JA.J..i.^.o.y.-\ The date shows when this volume was taken. ^ F'OB HOME USE RULES. ' 38, 40, 47-54; Prof. Johnson's "American Railway Transportation," 250-1. 12 Relations of the Railroads to the Public. is in some respects the most momentous economic movement in the United States at the present time." Moody says (p. 491) : "The Standard influence is felt quite force- fully in all the railroad groups, and this influence is showing a steady growth throughout the entire steam railroad field. It is now freely predicted in Wall street that the next decade will see the Rockefeller interests the single dominating force in the world of railway finance and control." Fifth. In the great railway groups and the stupendous Rail- road. Trust they are developing, the tendency is toward the concentration of control in fewer and fewer hands. Not only are railways absorbed by the wholesale, consumed more rapidly than they are produced, and the resulting systems gathered into enormous groups, but inside these systems and groups the movement is toward one-man power. Already, as I am informed by a leading member of the United States Interstate Commerce Commission, half a dozen men can meet and practically determine the transportation rates for the country. And the forces of integration and industrial gravitation that have operated so powerfully in the past are not likely to stop even with this high degree of centialization. "In Chicago," says Spearman, "the live men who in au- thority that is absolute are traffic directors of two-thirds of the United States may be found almost every day within a few moments' walk of each other.'™ A Hill-Morgan representative, a Harriman man, a Santa Fe man, a Gould man, and a Rock Island man can shape the rail- road destinies of the West^° and a large part of the middle and southern sections of the country. Add a Vanderbilt man and a Pennsylvania man, and you have a board of seven capable of controlling the rates and fares for nearly the whole United States. If you want to summon a Boston and Maine representative and swing Northern New England into line we will make it a board of eight. Some observers put the number of dominating influences lower than any of the above calculations. For example a writer in The World's Work points out the fact that of the seven transcontinental railroads (") "Strategy of Great Railroads," p. 163. (») Ibid, pp. 126, 162. The Railway Empire. 13 two are dominated by Hill interests,^^ and four by Harriman interests/' which also hold a big block of stock in the seventh,'^ so that the trans- portation interests of the western half of the continent are practically dominated by two men, Harriman and Hill, whose interests interlock in the Northern Pacific."* Add Gould, Vanderbilt and Pennsylvania representatives and you have five men representing the Harriman, Hill-Morgan, Gould, Vander- bilt and Pennsylvania interests and controlling substantially the trans- portation business of the continent. Pour years ago The Railway World declared that "A. J. Cassatt, Mr. Vanderbilt, J. P. Morgan, E. H. Harriman and James J. Hill are regarded as practically ruling all the great railroads of the country." Whatever may be the true number of our railroad kings, it is beyond question that a very few men have power to control our railway rates, and that still fewer will control them if the present processes of consolidation and combination continue. The managers of six big systems control three-fourths of the country and five-sixths of the trafific and indirectly dominate almost all the rest. The six big groups are growing into one. The Railway Empire looms huge and powerful out of the mists that shroud the future. Those who have the largest surplus incomes are continually buying their way to more complete control. John D. Rockefel- ler's income is variously estimated at two to six millions a month. Even if it is only the modest sum of $100,000 a day, he can live pretty well and still use most of his income to buy up more railroads and other properties; and with each new purchase, the income expands and the power of further pur- chase increases. Even the founding of a great university only retards the process for two or three months. The money piles up on his doorstep like a snowstorm, four or five thousand dol- lars an hour, day and night, $600,000 or more a week, and it must be invested; the Rockefeller power must grow by the natural law of surplus property in prudent, and especially in aggressive hands. (21) The Great Northern, the Northern Pacific and the C. B. & Q. (22) The Portland route, consisting of the U. P. and the Oregon Short Line, the Overland, or the U. P. and Central Pacific, the new trunk line consisting of the Denver & Rio Grande, or U. P. and the San Pedro, I/3S Angeles & Pacific Railroad, and the Sunset Route, or Southern Pacific from New Orleans to San (23) The Santa Fe, in which Harriman has recently bought a $25,000,000 in- terest. (2*) Harriman bought $78,000,000 of N. P. stock a few years ago and thought he had control, as the total was only $155,000,000. But he had $37,000,000 of common stock, while the Morgan-Hill people had $42,000,000, and the common stock had power to retire the preferred. So the Morgan-Hill interests prevailed. 14 The Railways, the Trusts, and the People. Moreover the smaller capitalists in a group permit the heavy men to dominate the business in large measure even where the latter do not hold a majority of the stock — a habit that is due partly to the prestige and ability of the big financiers, and partly to the knowledge that if their will is crossed they have the power to enforce it if they choose by buying a control or com- pelling obedience by the pressure of related companies and properties dominated by them. We have seen that the dead and captured companies lie in great clusters, that the independent companies controlling the clusters are themselves united in a few giant groups, that these groups are intertwined and affiliated, that the movement of con- centration is going rapidly forward, and that the tendency is for fewer and fewer men to control the combinations. If these movements, the merging of railways into great sys- tems, the gathering of these systems into giant groups, the interlocking and coalescence of these groups, and the progres- sive narrowing of control in each constellation of capitalists, continue to the limit, there will be in time a Railway Empire in this country dominated by a single man.'" The Railroad Trust may never reach this degree of concentration here, but the most strenuous devotee of decentralization and compulsory competition must admit that the coming of such an aggregation, viewed from the standpoint of existing conditions and tend- encies, cannot be deemed so unlikely as the present concentra- tion would have seemed to railway men, statesmen, or econo- mists fifty years ago. And whatever may be the outlook for the future, it is clear that the Railway question has become a trust question, and that the condensation of power already attained is sufficient to demand the serious attention of every one who believes in republican institutions and disapproves of auto- cratic or aristocratic power in the heart of the Republic. _ C^) Years ago Carroll D. Wnght, United States Commissioner of Labor, IS reported to have said: Ten men control the railroad business of the United States, and nearly all of them live in the city of New York." He quoted the statement of the Interstate Commerce Commission: "It is a matter of common knowledge that vast schemes of railway control are in process of consummation, and that the competition of lines is to be restrained by these combinations. U the plans already foreshadowed are to be brought into effective results, there will be a vast centralization of railroad properties with all the power involved m such far-reaching combinations, yet uncontrolled by any public authority " And commenting on this statement Mr. Wright continued: "This is a statement which will gradually arid more rapidly as time goes on sink into the consciousness of this country, as it sees that instead of ten men it is five, then instead of five it IS three, and instead of three it is one man that controls all the railroad interests of tne country. The Railway Empire. 15 In some countries consolidation does not bring these dan- gers. Switzerland has bought out the railway companies and consolidated the roads under public management in pursuance of the decision of the people on referendum vote. In Belgium the roads are consolidated in the hands of the government; in the German states also, and in the Anglo-Saxon states of Aus- tralasia. But in these cases the consolidated railways are man- aged by men who are trustees for the people and responsible to them. In America the tendency is to weld the roads into an empire, a consolidation under a management responsible to a few gigantic stockholders, dominated at last perhaps by a single autocrat, a Czar of all the railways. The motives that impel men to build these giant combines by consolidation or co-ordination relate partly to the economies and transportation benefits of union, and partly to the personal profit and power of those who control the combines. j The first motive and its consequences are in line with the public good. In so far as combination eliminates the wastes of conflict and secures the benefits of harmonious co-operation in the railway service, it is a gain to the community. But in so far as it conduces to the financial ascendency of Wall Street and intensi- fies the commercial supremacy and industrial dominion of a few great capitalists, it is a political, industrial, and social danger. The railways united form a much more extensive interest than the Government from an economic point of view f already they outrank our state governments and dominate the political af- fairs of sovereign commonwealths, and as a unit in the hands of a gigantic trust they might even overshadow and control the National Government itself. (^) The income of the National Government is $560,396,674. That of the railways is $1,966,000,000, or more than three times the income of the govern- ment. The increase of railway earnings for the year 1904 above their earnings for 1899 was $653,000,000, or more than the total receipts of the Government of the United States from all sources. The Government employs about 320,000 persons on its civil lists, or 411,400 including the army and navy. While the railroads employ 1,312,000 directly and about as many more indirectly — over three times the Government's ^ weight as an employer if we take the lowest figures for the railways and the highest for the Government, and more than eight times the Government's weight if we compare the National civil list with the full industrial force engaged directly and indi- rectly in the railway business and supported by it. i6 Relations of the Railroads to the Public. Chapter II. THE ALLIED INTERESTS. Industrial gravitation is working on other things than vi ways. Our railroads are coming together but they are r coming alone. Transportation systems and the men who cc trol them hold many great properties in related fields of indx try. They own steamship lines, trolley companies, elevat roads, banks, mines, oil wells and pipe lines, insurance coi panies, gas and electric plants, telephone companies, expn companies, grain elevators, docks, warehouses, hotels, rubt factories, steel mills, etc., etc., and dominate practically all t greater trusts and hundreds of the smaller ones. The New York, New Haven and Hartford Railroad ow the Providence and Stonington Steamboat Company, the Ne Haven Steamboat Company, and the New London Steambo Company (bought in 1901), and controls the Old Coloi Steamboat Company, the Norwich and New York Transport tion Company and the Bridgeport Steamboat Company (co trol acquired February, 1903).' Through its ownership of tl steamship lines in the Sound and its monopoly of the railroj business in southern New England, the New Haven road pra tically controls traffic between New York and Boston. Ar besides taking over the steamship lines and all the independei steam roads, it has acquired control of more than 370 miles ( electric railways in Connecticut and Massachusetts, effectual preventing serious competition from this source also. Tl Pennsylvania Railroad owns and operates four coal companii and a real estate and trust company, and owns shares in stre^ car companies and the Pennsylvania Canal Company. An the Reading Railroad, dominated by the Pennsylvania, contro 63% of all the anthracite coal fields of Pennsylvania," and owr stocks and bonds of iron companies, bridge companies, a harbc company, hotel company, the Bourse, etc. The following is partial list of the securities owned by one of the sub-compani( belonging to the Reading road :° n,/'f^ i^""""'^ Railroad Manual for 1903, p. 26; these steamboat lines, except t Old^Colony, are now merged in the New England Navigation Company. Poor, 190 _ 9 ^o""',^ '^f^^°^^ Manual, 1903, p. 136. One-half the capitalization of f Reading Railroad represents investments in anthracite coal fields, which stand ( Its books for $75,900,000. See Report United States Industrial Commission, V( IX, page s66, testimony of A. A. McLeod, ex-President of the Reading Road (") Poor s Manual for 1903: see also 1905, p. 134. The Allied Interests. 17 SYSTEM. STOCKS. BONDS. Lehigh & Wilkes Barre Coal Co $8,124,650 Spring Brook Water Supply Co. of Pa.. . 3,757,900 American Dock & Improvement Co 3,000,000 Alliance Coal Mining Co 150,000 $48,000 Allentown Iron Co 148,500 Carbon Iron & Steel Co 150,000 Hunter Run Water Works Co 5,ooo 16,330,338 Lackawanna Iron & Steel Co 20,000 Scranton Steel Co io,ooo Temple Iron Co 66,300 Real Estate Mortgages 132,167 Facts of the same sort occur all the way through the 1700 pages of Poor's Railroad Manual. One more example may be of interest here. Among the stocks and bonds owned by the New York Cen- tral are the following: American Express Company $3,000,000 Merchants Despatch Transportation Co 2,597,400 Western Transit Company 1,000,000 Clearfield Bituminous Coal Co 825,000 Beech Creek Coal & Coke Co , 500,000 West Branch Coal Co 105,000 Morris Run Coal Mining Co 56,200 Oswego Agricultural Fair Association 500 The Central owns ten grain elevators and 194 vessels. Many blocks of railroad stock are owned by the Central in independent railroad companies; for example, it holds $5,000,000 stock in the Chesapeake and Ohio Railway Company, and this controls eighteen railways aggregating 1400 miles of line, a grain ele- vator company and two steamship companies, one of which is a British corporation operating a line from Liverpool and Lon- don to Newport News and New England. Among the directors of the Western Union Telegraph Com- pany, $121,000,000 capitalization, are the following: George J. Gould, Edwin Gould, Frank J. Gould, Howard Gould, J. P. Morgan, Chauncey M. Depew, E. H. Harriman, Jas. Stillman, T. T. Eckert, Jacob Schiff, John Jacob Astor, Russell Sage, Oliver Ames, John J. Mitchell, Samuel Sloan, etc. The interlocking of railroad interests. East and West, with the telegraph monopoly is apparent. 1 8 The Railways, the Trusts, and the People. The Morgan, Vanderbilt, and Pennsylvania interests control ■the anthracite coal deposits of Pennsylvania. The Morgan-Hill interests not only hold over 50,000 miles of railway capitalized at $2,265,000,000, the greatest ' railway system in the world, but control vast steamship lines in the Atlantic and the Pacific, connecting their roads with Europe on the one hand and with Asia on the other — over 60,000 miles in all of vital transportation lines. Besides controlling the most stupendous transportation system in existence, and abso- lutely dominating large sections of the country, such as the entire South and the great Northwest, and extending across both oceans ; besides holding the industries of twenty millions of people in the East almost in the hollow of their hands through their power over the coal fields — besides all this, the Morgan people exert large influence through great financial institutions, such as the National Bank of Commerce, the First National Bank, Chase National Bank, and Liberty National Bank ; and the big trust companies, such as the Mercantile, Guaranty, and Central Trusts. They are also powerful in such giant life insurance companies as the New York Life, and in the Rubber Trust, the Electrical Supply Trust, the elephantine Steel Trust, and a score or more of smaller combines are Morgan enterprises. In the Steel Trust it is said that the Rockefeller interests now overshadow the Morgan influence, but these two trust and railroad powers are so interwoven and so closely allied that, so far as the public is concerned, they practically form one interest. The Rockefeller financiers hold the Standard Oil Company with a capitalization of $97,500,000 in par values and about $500,000,000 in market values,* a monopoly which "absolutely dominates the oil industry of the United States, supplying 84% of the domestic demand for oil, and over 90% of the export demand." The dividends of the Standard exceed $40,000,000 a year, and its net profits are reported to be more than $60,000,000 a year. In the franchise aggregations Stand- ard Oil influence is everywhere prominent. The Rockefeller interests practically dominate the entire public service syndi- cates of Greater New York represented by over $725,000,000 (*) In the latest quotations I have seen 628 was offered in New York for Stand- ard Oil stock and 631 was asked. The Allied Interests. 19 of capital; and they are allied with the United Gas Improve- ment Company of Philadelphia, which controls the gas supply of thirty cities and is capitalized at about $100,000,000. A chain of banking institutions, headed by the great National City Bank of New York, with a capital and surplus of $40,000,- 000 and deposits of $200,000,000, includes also the Hanover National Bank, the Second National Bank, the United States Trust Company, the Farmers' Loan and Trust Company, the Central Realty Bond and Trust Company; and a number of smaller banks are Standard Oil institutions. Some of the great life insurance companies, as the Mutual and the Equitable, are closely allied with Standard interests." The Standard influence is a controlling factor in one of the great railroad groups as we saw in the preceding chapter, and it is felt so forcefully in all the railroad groups and is growing so rapidly, that as we have previously noted, it is predicted in Wall Street that the Rockefeller interests will in a few years become the single dominating force in the railway world. The Rockefeller inter- ests are already the controlling factors in the Copper Trust ($175,000,000 capitalization), and the Smelters' Trust with $201,550,400 capitalization, and perhaps, as stated above, in the mammoth Steel Trust with a capitalization of $1,370,000,000. They are also closely identified with the Tobacco Trust, which now practically encircles the globe, and has $502,915,700 capi- talization, and their influence is felt in marked degree in all the greater Trusts, including the Sugar Trust and the Ship- ping Trust in addition to those just referred to, and the big Franchise Trusts — Telegraph and Telephone Companies, Phila- delphia Rapid Transit Company, Brooklyn Rapid Transit Com- pany, Metropolitan Securities Company (controlling the New York Street Railway Company, the Metropolitan Street Rail- way Company, the Third Avenue Street Railway, the Peoples' Traction Company, and the New York, Westchester and Con- (^) The great life insurance companies have other ties that bind them to the railways. For example, Hyde, till recently the majority holder in the Equitable, is a director of the Wabash, the Missouri Pacific, the Union Pacific, the Southern Pacific and the Texas & Pacific. T. F. Ryan, who has bought Hyde's controlling vote in Equitable, heads the list of owners in the Mutual, and has large influence in the New York Life. It is said that he has virtually co-ordinated these giant insurance companies which are known as "the Big Three." He has brought into direct community of interest financial concerns said to have resources of $1,440,- 000,000. This powerful organizer and trust capitalist is also a railroad man. He is a director in several railroads, and the great insurance companies with whicii he is identified hold large blocks of railroad securities. 20 Relations of the Railroads to the Public. necticut Traction Company)," the Edison Illuminating Company of Brooklyn, the Edison of New York, and various electric companies, the United Gas Improvement Company, above men- tioned, the Consolidated Gas Company of New York, etc., etc. The Standard has not yet organized a Sun Trust or a Moon Trust, I believe, but Kerosene certainly evinces a strong incli- nation to secure a monopoly of all other important sources of illumination, and of everything else in fact.' Mr. Moody, from whose authoritative work, "The Truth About the Trusts," these facts relating to the trust interests of the Rockefeller and Morgan capitalists have been gathered, says that the extent of their power cannot be revealed in full. "It is not possible to more than attempt an approximate estimate of the entire Standard Oil industrial, iinancial and commercial interests of the nation, as their ramifications are so varied and extensive that a clear line of demarcation could not be drawn which would absolutely distinguish the interests which are more or less dominated by them, from those which are not. . . . The Morgan group of industries and transportation companies is, next to the Standard Oil interests, by far the most important. In fact, the only gigantic interests or groups which can in any sense be considered as on the same plane are the Rockefeller and Morgan groups. There are, it is true, a number of other large groups in special lines, but these two are the only dis- tinctly great interests that dominate immense areas in all lines, steam transportation, public service, industrial, financial, banking, insurance, and so forth." Speaking of the relation of the Rockefeller and Morgan interests Moody says : "It should not be supposed that these two great groups of capitalists and financiers are in any real sense rivals or competitors for power, or that such a thing as 'war' exists between them. For, as a matter of fact, they are not only friendly, but they are allied to each other by many close ties, and it would probably require only a little stretch of the imagination to describe them as a single great Rockefeller-Morgan group. It is felt and recognized on every hand in Wall street to-day, that they are harmonious in nearly all particulars, (.') Railroad relations -with trolley lines are often much more direct than any harmonization through their mutual friends, the trusts, and the movement for direct absorption is gaining headway rapidly. This year, 1905, a bill to permit steam railroads to buy up trolley lines passed both Houses in Massachusetts. In view of the Governor's probable veto, however, the bill went over to the next Legislature in the hope of getting a railroad governor next time. (') In Butte, Montana, I met with an interesting example of amalgamation ot corporate interests and the ramifications of the cancerous roots of the Standard. A leading officer of the Montana Ore Purchasing Company said in reply to my ques- tion about affiliations: "The Amalgamated Mining Company, under Standard Oil control, owns a majority of the stock of the Anaconda Smelting Company, which owns a majority of the stock of the B. & A. P. Ry. Co., which owns a majority of the stock of the town site company, which owns a majority of stock in a big hotel." So the Standard Oil, through the Amalgamated, held the mines, smelters, hotel, town, and railway. The Allied Interests. 21 and that instead of there being danger of their relations ever becoming strained, it will only be a matter of a brief period when one will be more or less completely absorbed by the other, and a grand close alliance will be the natural outcome of conditions which, so far as human foresight can see, can logically have no other result. Around these two groups, or what must ultimately become one greater group, all the other smaller groups of capitalists congregate. . . . These two mammoth groups jointly (for, as pointed out, they really may be regarded as one) constitute the heart of the business and commercial life of the nation, the others all being the arteries which permeate in a thousand ways our whole national life, making their influence felt in every home and hamlet, yet all connected with and dependent on this great central source, the influence and policy of which dominates them all." Railroad consolidation began in 1853, when ten little rail- ways covering the 297 miles between Albany and Buffalo were merged into the New York Central Railroad. Now the Van- derbilt system covers 22,000 miles ; there is another system with 47,000 miles ; another with 28,000 miles, etc. ; and these sys- tems are interlocking and merging into a Railroad Trust con- trolling nearly 178,000 miles of vital railways, or nearly all the important lines in the country. The formation of vast industrial trusts began in 1872, when the anthracite coal combination was formed by an alliance of producers and carriers and when the interests which compose the Standard Oil Trust first began to work in harmony with each other and use the power of their railroad allies to clear the field of competitors. To-day there are 450 to 500 trusts, with an aggregate capitalization, including the railroad and other franchise trusts, of something like $20,000,000,000. And still more trusts are forming and the limits of existing trusts are being extended and their interlocking interests increased and intensified. They are reaching out after the land, and the control of market, labor, and raw materials. They are estab- lishing international relationships aiming to monopolize the globe in their lines of business. And they are joining hands with each other. On the whole the situation seems to be this: The railways and other big franchise monopolies are co-ordinating with the great commercial combines into a gigantic machine controlled by a few financiers and created to manufacture or capture profit for them. Events are moving toward a consolidation of 22 The Railways, the Trusts, and the People. interests that will give a handful of capitalists practically im- perial power through the vastness of their industrial dominions. There may be breaks in the movement, probably will be, but the integration of industry seems likely to continue in spite of strenuous efforts to prevent it by statutes and decisions. The Sherman law and the anti-pool and anti-trust decisions have done nothing but change the forms and methods of union. So long as men are free to buy stocks and properties, and may consult with each other and act upon their conclusions, com- binations will go on. And the railways are generally regarded as forming the basis of the structure, or a large part of it. I have met with this opinion all over the United States and in some other countries. In Germany I was told that the comparative immunity of Germany from such aggressive trusts and monopolies as those that prevail in the United States must be attributed chiefly to the fact that all producers and dealers are treated impartially by the state railways. In this country it is matter of history and legislative investigation that some of - the trusts, the Oil Trust, Coal Trust, Sugar Trust, Beef Trust, etc., owe their development largely to railway rebates and special transit privileges. If a railway manager has an interest in a coal mine, iron company, or oil combine, he will be likely to give it advantages that will add greatly to its power of crushing its rivals. Nothing pays better in the organization of a trust or any great business enterprise than to have some strong railroad men in the combine, even if you have to make them a present of the stock. And when the same men own and control both the railways on the one hand and the coal mines, steel mills, etc., on the other, it is clear that all the properties will be handled as a unit to destroy rival interests,' enlarge the profit and power and accomplish the purposes of the omnivorous owners. These owners sometimes use their power in ways that seem detrimental and oppressive to people who are not represented in the combines. For example, a legislative investigation in New York brought out the fact that the Milk Trust of the Metropolis, in league with the railways, fixed the price to the consuming public at 7 and 8 cents a quart, while allowing the (^) See Chapter on Fostering Monopoly. The Allied Interests. 23 farmer but 3 cents. And Federal investigation has shown that the "Big Four," Armour, Swift, Morris and Hammond, con- stituting the Meat Trust, adopted a plan of indeterminate prices to the great confusion and loss of farmers and ranchmen rais- ing cattle and hogs. If few cattle trains were coming in prices were put up. Farmers seeing the improved quotations would ship their stock. When the telegraph told the combine that many cattle were coming in they would put prices down. The cattle would soon eat off their heads if held in Chicago. There were practically no other buyers than the Trust, for the great capital invested and the advantages which such immense deal- ers have in the matter of railroad rates and transit accommo- dations enabled them to clear the market of competitors. So the farmers had nothing to do but sell their stock to the Trust at whatever price it chose to fix. The resulting loss to the pro- ducers of a single Western State has been estimated at fifty millions in a decade. The farmers sell to monopolies intrenched behind the rail- ways or pay the railway monopolies for transportation, and when they buy they find the market monopolized against them again. So they lose at both ends the unearned increments that are demanded by the monopolies, and they have no effective monopolies of their own with which to get back the lost in- crements. The Railway Trust and its allies drain the wealth of the farms into the cities." But however much we may deplore this disturbance of the fair distribution of wealth and the concentration of enormous power in the hands of a few, we must not allow ourselves to forget that the men who have formed and are forming the giant trust and railroad combines, and welding them into an Indus- (*) Nearly all the directors of the great railway systems belong to the big cities. For example, all but one of the directors of the New York Central System, reach- ing more than half across the continent, are residents of New York City. Of the Baltimore & Ohio system all the directors but one belong in the big cities. Of the Atchison system 7 belong in New York City, 3 in Chicago, and 4 are scat- tering. In the Great Northern the 11 directors are in St. Paul except one New York City man. Of the 11 directors of the Chicago, Burlington & Quincy, 8 belong in New York, I in Chicago, i in St. Paul, and i in Burlington. In the Southern Pacific all the directors are of New York except two, and one of these is a Boston man. Similar conditions prevail in the Union Pacific, Missouri Pacific, Erie, New York, New Haven & Hartford, etc., etc. Such directors natur- ally use the vast power of the railways they control to draw traffic and wealt_h_ to the cities with which their fortunes are largely identified. Moreover, competition in the past has given the cities privileged rates that could not be revoked without seriously disturbing values, and take for themselves as much as possible of the values produced Ijy the farmers and working classes. 24 Relations of the Railroads to the Public. trial Empire, are serving public interests, in large measure, as well as their own. And in some cases the improvement of in- dustrial conditions in lines that will make for the public good is one of the conscious motives. Public and progressive spirit, love of profit and power, joy in the exercise of constructive ability, and delight in the management of great affairs, unite to make trust-building one of the most fascinating pursuits yet invented f and it may be regarded as in many ways one of the most useful occupations also. The trouble is that where public and private motives conflict, the magnates usually follow the latter, and the ethics of private business not only justify this in large part, but even make it the magnates' duty in order to conserve the financial interests of their partners and co- investors in the companies they control. (}°) One of the fascinations is the power that monopoly gives to control markets and raise prices or at least maintain them above the competitive level. The Nail Trust raised prices loo percent. The Tin Plate Trust raised them 50 percent. The Coal Trust has been known to raise the price $1.00 a ton at a single stroke— equivalent to levying a tax of $40,000,000 upon the country. The Paper Trust also advanced prices; and the Beef Trust, Milk Truiet, and many others. Uven where prices continue on the down slope naturally incident to pro- gressive improvement in methods of production, it is doubtful if trust prices are ever as low (except spasmodically for purposes of extirpating competition) as they would be without the trust. For example, the price of sugar in 1897 was 25 percent lower than in 1887, when the Sugar Trust was formed, but the dif- ference between the price of raw sugar to the producer and the price of refined sugar to the consumer was 23 percent more than in 1887, altho the cost of re- fining sugar was much less than it was in years before. In other words, the Trust (a refiner of sugar) had materially increased the price for its services, and it is estimated that our sugar bill is $10,000,000 to $20,000,000 a year more be- cause of the Trust — (Review of Reviews, June, 1899, p. 685.) Matches are said to cost 3 cents a gross to manufacture, but the Match Trust and the dealers manage to make us pay 30 to 50 times that much for the little igniters. The Steel Trust charges $28 a ton in the United States for steel rails which it sells in Europe for $18 or $20 a ton. The Standard Oil charges 4^. cents for oil in one town where there is competition, and 8 cents in another town nearby where there is no competition. Some of our people pay 16 cents for oil, while the same company ships oil to Europe so that it sells there at retail for less than 3 cents a gallon. Even in Australia the Standard's oil sells cheaper than in America. The Oil Trust has charged oil-well users zo cents a barrel for piping oil, or over 800 times the cost — 8000 percent profit for the Trust. The oil men say that when Rockefeller builds a palace or makes a donation to Chicago IJni- versity, the Trust raises the price of oil to consumers or lowers the price paid to producers or both. Trust building is not only fascinating to the leading owners whose properties unite, but to the members of the new profession of trust-promoting. For example, testimony given before the United States Industrial C^ommission indicates that in the organization of the Standard Distilling Co. $150,000 in stock was issued to the promoter for each $100,000 of cash value that was brought into the combine either in the form of cash or tangible property. This was a face value of 150 percent on the whole value of the properties — i ^ times the entire actual value paid to the promoter alone, besides the stock issued to owners and underwriters. <5ne man is said to have received in a brief period between $30,000,000 and $40,000,000 in stocks for his work in organizing trusts. The promoter of the American Tin Plate Co. received $10,000,000 in stock. The promoters of the American Steel and Wire Co. were paid $15,000,000 in stock it is said. And all these rewards sink into insignificance by the side of the renowned compensation for organizing the Steel Trust. Railway Discrimination. 25 Chapter III. RAILWAY DISCRIMINATION. The law requires that common carriers shall be impartial;' and justice in this instance coincides with law. Outside of the Oil Trust, Beef Trust, one or two professors in Rockefeller's Oil University, the people who infest the stock exchanges and other haunts of gamblers in railway stocks, and some other ethical slums in our big cities, the conscience of the civilized world is practically a unit on this point. Constitutional pro- visions and State and Federal statutes have been enacted by the carload to enforce the rule. The railroads themselves declare that it is right. And yet in spite of the railway conscience and the common law, the universal sense of justice of mankind, and the whole legislative, executive, and judicial power of the Government, the rule is not obeyed. On the contrary, disre- gard of it is chronic and contagious, and constitutes one of the leading characteristics of our railway system. In spite of law and justice our railway practice is a tissue of unfair discrimina- tions denying the small man equal opportunity with the rich and influential, and breaking the connection between merit and success. Neither the common law nor the Granger laws (1872-6), nor the constitutional provisions of many states, nor the Inter- state Commerce Act (1887), nor the Elkins Law (1903), have been able to stop railway favoritism nor accomplish an3dhing except a temporary diminution of certain phases of discrim- ination. Even the most vigorous attacks, like the Federal laws of 1887 and 1903, though partially preventing rebates and some other forms of favoritism for a few months, till the popular agitation blew over and the railways and trusts got a new grip on the situation, have ultimately done substantially C) Even before the statutes against discrimination were passed, tlie full fledged common law emphatically declared it the duty of common carriers to be impartial. "They cannot legally give undue or unjust preferences or make unequal or ex- travagant charges. They are bound to provide reasonable and sufficient facilities. They must not refuse to carry _ any goods or passengers properly applying for transportation. They have no right to grant monopolies or special privileges or unequal preferences, but are bound to treat all fairly and impartially. (See New England Exp. Co. vs. Maine Central Rd., 57 Me. 188; Fitchburg Rd. vs. Gage, 12 Gray (Mass.) 393; Kenny vs. Grand Trunk Rd., 47 N. Y. 525; Messenger vs. Penn. Rd., 8 Vroom (N. J.) 531; Chicago, &c., Rd. vs. People, 67 111. 11; Wheeler vs. San Francisco Rd., 31 Cal. 46.) 26 The Railways, the Trusts, and the People. nothing but to drive discrimination into new and more secret and dangerous forms. The railways unjustly favor persons, places and commodi- ties, and they do it constantly, systematically, habitually. If every instance of unjust discrimination that occurs to-day were embodied in human form and the process were continued for a year,' the outlaw host would dwarf the Moslem hordes that deluged Southern Europe in the days of Charles Martel, would outnumber many fold the Grand Army of the Republic in its palmiest days, and, shoulder to shoulder, the dark and danger- ous mob would reach across the continent, across the ocean, over Europe and Asia and around the world. The railways discriminate partly because "they wish to, and partly because they have to. The managers favor some inter- ests because they are linked with the interests of the railways, or the managers, and they favor some other interests because they are forced to. The pressure of private interest is stronger than the pressure of the law, and so the railroad manager frac- tures his conscience and breaks the statutes and the common law in fragments. The purpose of discrimination may be (i) to keep business from going to a competing line; or (2) to increase revenue by creating new business for which, if necessary, rates may be dropped very low, as anything above the cost of handling on new business will add to income; or (3) to simplify and solid- ify traffic ; or (4) to favor persons who, through political influ- ence or other power may aid or injure the road, or who, through friendship, marriage, business or civic relation or otherwise, have a "pull" with the management; or (5) to advance the interests or enhance the value of a business, prop- erty, or place in which the railway or its officers or their friends are interested; or (6) to "kill" or injure a place or person or business that has incurred the enmity of the railways or their allies. As a result of the play of these motives, our railroad history (') Pass discriminations alone, it is estimated, amount to some 200,000 free transits a day, or over 70 millions in a year. And as for freight discriminations, the reader who follows this chapter through will see that like the leaves of the forest they defy computation. Just a hint may be given here. Every day that one of the 300,000 private cars is carried at the present mileage rates, a discrimi- nation is made in favor of the owner of the private car — a hundred millions of unjust discriminations possibly in this one item. Railway Discrimination. 27 is full of unfair discriminations between persons, places and industries in the United States, and between domestic and for- eign trade. The methods and forms are many and have grown more numerous with each succeeding epoch, but the predom- inant forms vary in the different strata. We still have plenty of living specimens of the species that prevailed in earlier periods, but the leading forms now are comparatively recent evolutions. The history of discriminations would fill many volumes. The Hepburn Committee (1879) appointed by the New York Legislature collected about 5000 cases of discrimination. It was shown to be a common thing for railroads to give favored shippers discounts of 50, 60, 70, and even 80% from the regular rates. The special contracts involving favors in force for one year on a single railroad, the New York Central, were estimated at 6000. The United States Senate Committee of 1885, the Congressional Committee of 1888, the Interstate Commerce Commission 1887-190S, the United States Industrial Commission 1900-1902, the in- vestigations of Governor La Follette in Wisconsin, 1903, the United States Senate Committee, 1905, the State Railroad Commissions, the courts, and other investigating bodies, have brought to light additional thousands of discriminations. We shall select some examples illustraf'ng various methods of discrimination, and then summarize the situation. THE PASS SYSTEM. One of the most important forms of discrimnation is the railroad pass. Many persons of wealth or influence, legislators, judges, sheriffs, assessors, representatives of the press, big ship- pers, and agents of large concerns, get free transportation, while those less favored must pay not only for their transpor- tation, but for that of the railway favorites also. The free pass system is especially vicious because of its rela- tion to government. Passes are constantly given to public officials in spite of the law, and constitute one of the most insidious forms of bribery and corruption yet invented. I have before me as I write a bunch of photographs of annual passes given by the Pennsylvania Railroad in 1904 and 1905 to rnem- bers of the State Legislature and the City Council of Philadel- phia.* The Constitution of Pennsylvania, Section 8 of Article 8 (*) It helps a legislator to see the justice in railroad bills and arguments when he has in his pocket a bit of pasteboard that entitles him to travel over the road as much as he likes for a year free of charge. When a railroad does not want any- thing in particular it may save a good deal of money by stopping the issue of free passes. In Pittsburg, during the Pennsy's war with Gould, the deadhead business 28 Relations of the Railroads to the Public. says: "No railroad, railway or other transportation company, shall grant free passes, or passes at a discount, to any persons except officers or employees of the company." The question is, whether the members of the Legislature are employees of the Pennsylvania Railroad! The Pennsylvania is not alone in this delicate generosity to legislators and other persons of influence. The practice is practically universal. From Maine to California there is not a state in which the railroads refrain from giving passes to legislators, judges, mayors, assessors, etc. And the roads expect full value for their favors. Sometime ago a member of the Illinois Legislature applied to the president of a leading railroad for a pass. In reply he received the following : "Your letter of the 22d to President requesting an annual over the railroad of this company has been referred to me. A couple of years ago, after you had been furnished with an annual over this line, you voted against a bill which you knew this company was directly interested in. Do you know of any particular reason, therefore, why we should favor you with an annual this year ?" The railroads give passes to legislators and public officials, not as a rule in any spirit of philanthropy or respect for public office, but as a matter of business ; and if a legislator does not recognize the obligation that adheres to the pass, the pass is not likely to adhere to him in subsequent years." A prominent judge of Chicago tells me that for years the leading railroads entering that city have sent him annual passes without request. I found the same thing in Denver, San Fran- cisco, New York, Boston, and nearly everywhere else I have been in this country. The mayor of one of our giant cities told me this very morning that the principal railroads sent him annuals, but he returned them. It would be better if he would became a serious burden; and when the war was over the Pennsy had an eruption of virtue and cut off the graft under a general order against unlawful passes. The order is a shield — an excuse for not giving passes the road idoesn't want to give. But in Ohio, where influence is needed in the legislature, the press reports that "the Pennsy was the first to distribute the little pasteboards" this year (1906) in spite of the order. (=) A little while before Congress began to consider the rate legislation now pending, a Congressman from the far West was visiting with me. He had free transportation for himself and family anywhere in the United States any time he wanted it. A lady in the family asked him' if it was the same way with the rest of the congressmen, and he said "Yes." I have in my notes conversations with senators and representatives from 18 states, and all of them stated in reply to my questions that passes were an established and regular part of the perquisites of a member of Congress. But since the Esch-Townsend bill for the fixing of rates by a government commission came on deck, I understand that some of the congressmen who supported it have learned the lesson conveyed in the railroad president's letter above quoted. Railway Discrimination. 29 turn the next lot over to a publicity league, or put them in a museum. Mr. A. B. Stickney, President of the Chicago and Great Western, told the United States Industrial Commission' that his road did not hesitate to give passes to judges and other influential people ; in fact, he said, "We never feel at liberty to refuse" that class of men. Six years after the Interstate Act prohibited all preferences, and twenty years after the state crusade against passes and other discrimina- tions began, C. Wood Davis, a railway auditor of large experience, and an executive officer having authority to issue passes, stated that "10 per- cent of the railway travel of this country is free, the result being that the great mass of railway users are yearly mulcted some $30,000,000 for the benefit of the favored few. No account of these passes is ren- dered to State, Nation, or the confiding stockholders."" If 10 percent still ride deadhead, as is quite probable, the resulting tax upon paying railway users is now over $50,000,000 a year. The effect of legislation has been to give the railways an excuse for shutting off the less influen- tial of the former deadheads, while the big people ride free in spite of the law." In addition to the passengers who travel free on passes there are many who have free transportation in other forms. There are pas- senger rebates as well as freight rebates. In the investigation of the Wisconsin railroads recently instituted by Governor La Pollette (cover- ing the years 1897-1903 inclusive) it was found that every railroad of importance in the State had paid rebates every year both on freight and passenger earnings. Here is a table of the unlawful rebates paid by the leading railways in Wisconsin so far as brought to light by the investigation :' (*) Vol. IV, pp. 4. s. 6, 7. "Is there any good reason," asked Commissioner Kennedy, "wliy a judge who gets a good salary should have a pass — any greater reason than why John Smith should have a pass?" "That depends," said President Stickney, "on what you call a good reason. . . . Twenty-five years ago I had charge of a little bit of a road that was a sort of subordinate of a larger road. I had occasion to visit the president of the superior road about something, and he said, 'Mr. Stickney, I see that the sheriff of tills county has a pass over your road. I should like to know on what prin- ciple you gave that sheriff a pass.' I said, 'I did it on the principle that he was a power, and I was afraid to refuse him.' 'Well,* he said, 'I refused him.* I said, *You will wish you hadn't before the year is over.* Sometime afterwards, and during the year, I went into the office to see the superintendent, but he was not in; I went into the general freight agent*s office, and he was not in; I went into the generai manager's oifice, and he was not in. So I then went into the office of the president and said, /-What kind of a road have you got? Your superintendent is not liere, your general freight agent is not here, and your general manager is not here?* He hung his head down and said: 'Do you remember that conversation we had about that sheriff's pass? He's, got all those men on the jury and has them stuck for about two weeks.* ** (°) See Mr. Davis' article in "The Arena,** Vol. IV, 1891, pp. 281-2. (*) See the evidence cited below and in the chapter on Railways in Politics. (') See McClure's Magazine, Dec, 1905, where Ray Standard Baker has stated the leading facts. 30 The Railways, the Trusts, and the People. Illegal Rebates Paid to Shippers in Wisconsin in 1897-1903. freight passenger Chicago, Milwaukee and St. Paul $1,346,237.29 $170,968.08 Chicago and Northwestern 3,023,810.99 614,361.58 Chicago, St. Paul, Minneapolis and Omaha . . SI5.323-30 64,559.64 Wisconsin Central 244,492.19 82,475.35 "Soo Line" 464,041.75 39,807.63 Burlington 366,105.83 Other Railroads 158,677.83 489.42 $6,118,689.18 $972,661.70 Passenger rebates are repayments of a part or the whole of the amounts paid by the favored parties for the tickets or mileage. For example, large concerns that employ traveling men buy ordinary pas- senger mileage books, and when the mileage is used the cover of the book is returned to the railroad and a refund is made. In the case of some favored shippers in Wisconsin it was found that the railroads secretly refunded the entire original cost, or $60 per book. So that these favored houses "were able to send out their entire force of travel- ing men without paying one cent of railroad fare, while their com- petitors paid full fares." One of these Wisconsin concerns, the Northern Grain Company, received from the Northwestern Railroad alone $151,447 rebates in five years, or over $30,000 a year, partly as refunds on the passenger mileage books of their traveling men and partly as cash rebates on their business. The president of the Northern Grain Company is O. W. Mosher, who was a State senator in 1901 and 1903 and fought the railroad reforms proposed by Governor La Pollette. He vigorously defended "individual liberty" and the right of the railroads to "control their own property," and it is easy to understand his earnest opposition to railroad regulation since it has come out that "individual liberty" and railroad laissez-faire meant $30,000 a year to his company. Paul Morton says : "Passes are given for many reasons, almost all of which are bad. Passes are given for personal, political and commercial reasons."* President Stickney said in a recent address before the Washington Economic Society: "The law which makes it a misdemeanor for any individual not an officer of a railway company to use a pass was enacted by Congress and approved by the President 18 years ago; and as an individual rule of action it was ignored by the congressmen who passed it and by the president who approved it ; and the subsequent congress- men and presidents, with rare exceptions, have ignored its provisions. Traveling, they present the evidence of their misdemeanor before the eyes of the public in a way which indicates no regard for the law. The governors of the States, many of the judges— in short, all officialdom (') Testimony before U. S. Ind. Commission, 1900, Vol. IV, 490. Railway Discrimination. 31 from the highest to the lowest — the higher clergy, college professors, editors, merchants, bankers, lawyers, present the evidence of their mis- demeanor in the same manner."" Other leading countries are not afflicted with this pass dis- ease to any such extent as we are ; some of them do not have the malady at all. In France and Italy I was offered passes, but the Government roads of Austria, Germany, and Belgium not only did not offer passes, but refused to grant them even when considerable pressure was brought to bear." The Min- ister of Railways in Austria informed me that he had no pass himselfj but paid his fare like any ordinary traveler. No amount of personal or official pull could secure free transpor- tation. The same thing I found was true in Germany. Only railway employees whose duty calls them over the road have passes. The Minister pays when he travels on his own account. And the Emperor also pays for his railway travel. It is the settled policy of Government roads in all enlightened countries to treat all customers alike so far as possible, concessions being made (") Since the text was written (August, 1905) the New York Central and the Pennsylvania have decreed that after January i, no free passes will be issued except to employees. As we have seen "constitutional reason" to believe, this may still cover members of the legislature and city councils. And even if the order should happen to be enforced according to the common acceptation of the word employees, there are plenty of ways in which free transportation can be accorded to men the railroad management deems it desirable to favor in that way. Tickets or mileage books, with special marks or recorded numbers, can be given instead of passes, or refunds of money spent for travel can be made, private cars can be used, and whenever convenient the deadhead can be regarded as an employee- such fictions are constantly used even now in the case of large shippers and their agents, and it is not difficult to enlarge the class. Railroads have declared before that pass giving would be discontinued, and sometimes it has been to a consider- able extent, but after awhile the evil cropped out again almost quite as bad as ever. It is not possible to predict the real effect of the order, but there is no question that the railroads will continue to favor influential men in one way or another in sufficient measure to keep their grip on legislative bodies, etc. The order may constitute an easy method of lopping off the overgrown demand for passes, a ready excuse for denying requests the railroad does not wish to honor, with- out in the least interfering with its power to favor those it really wishes to favor. In cutting off passes to city officials in Pittsburg lately the Pennsylvania railroad officers stated that the demand had become so great that those having free rides were actually crowding the paying passengers on many of the trains. The Phila- delphia North American declares that in that city every big and little politician expected free passage when he requested it, and that there was no ward heeler so humble that he might not demand transportation for himself and friends to Atlantic City, Harrisburg, or any other point on the Pennsylvania lines. The Springfield Republican says: "It does not appear to be recognized, in the praise given to the present action of the railroad company, how great an impeach- ment of its management the old order constituted. We are told that passes were issued literally in bundles for the use of political workers, big and little." (") In order to test the attitude of the Government roads I did my best to get passes, trying first through the American ambassadors in Vienna, Berlin and Brussels, and afterward by direct appeal to the railway management. But it was of no use, altho I had a letter from the Chairman of the United States Industrial Commission saying that I had rendered the Government valuable service in con- nection with the work of the Commission, and that any courtesies shown me or assistance afforded me in my researches would be a public service. I had other strong letters from men of high distinction in the United States and England, and the ambassador at Berlin was my college president and very friendly, but nothing could avail to secure a pass on the Government roads — considerations which brought offers of passes on private roads without request were of no effect with the government systems. 32 Relations of the Railroads to the Public. if at all, to those who cannot afford to pay or who have some claim on the ground of public policy, as in South Africa, where children are carried free to school, in New Zealand, where men who are out of work are taken on credit or contingent payment to places where they may find employment, and in Germany and other countries where tickets are sold at half price for the working men's trains in and out of the cities, morning and night. Even in England, tho the roads are private like ours, the working people have cheap trains and the public officials pay full fare. The King of England pays his fare when traveling, and if he has a special train he pays regular rates for that too. Members of Parliament also and minor public officers pay for transportation. Passes are not given for political reasons. The law against this class of discrimination is thor- oughly enforced. In this country, not only members of Congress and other public officials, but some of our presidents even have subjected themselves to severe criticism by accepting free transportation in disre- gard of Federal law. FREIGHT DISCRIMINATION. We come now to a kind of discrimination that enables a rail- way manager to determine which of the merchants, manufac- turers, mine owners, etc., on his line shall prosper and which shall not; what cities and towns shall grow, what states shall thrive, what industries shall be developed. One of the discriminations most complained of in early years was the charging of lower rates for a long haul than for a short haul on the same line — ^less for the whole than for a part. For example, the rate from New York to Ogden, Utah, was $4.65 per hundred, while $2.25 per hundred carried the same- freight all the way from New York to San Francisco. The railroads charged more if the car stopped part way than if it went on to the Pacific — more than twice as much in fact for the part haul as for the full distance, so that the extra charge for not hauling the car on from Ogden to Frisco was greater than for hauling it the entire distance from ocean to ocean. They seemed to be willing to take off half for the privilege of hauling the car another 1000 miles. The Interstate Commerce Act made it "unlawful to receive more for a shorter than for a longer distance including the shorter, on the same line, in the same direction, under substan- tially similar circumstances and conditions," except where the Commission created by the Act shall authorize the carrier to charge less for the longer than for the shorter distance. (Sec- Railway Favoritism. 33 tion 4 Act of 1887.) But if there is competition at the point that has the low rate the courts hold that this may put the case outside the phrase "similar circumstances" even tho the competition is created by the railroads themselves." So that the railways can themselves create or continue the conditions which the Supreme Court says are sufficient to release them from the long haul clause. The result is that lower charges for a long haul than for a short one still continue not only where water competition forces it on the railroads, but where the dissimilarity of circumstances is the result of their own action, and in still other cases where there does not seem to be any justification natural or artificial, real or apparent. There are numberless cases on record of higher charges for the short haul since the Interstate Act was passed. Only a few illustrations can be given." From Pittsburg to Colorado the rate on rails was found to be $1.60, while the rate all the way through to San Francisco was only 66 cents. From' Pueblo to San Francisco, 1,559 miles, the rate on bar iron and on rails was $1.60 per hundred, while from Chicago to San Francisco, 2,418 miles, the rates were 50 cents on bar iron and 60 cents on rails ; and even from New York to San Francisco the same rate of 60 cents was made for rails. The Denver merchant pays $2.24 per hundred on goods from Boston, while the same trains carry the same sort of goods all the way from Boston to San Francisco, a thousand miles further west than Denver, for $1 per hundred. In other words, Denver pays over twice as much as San Francisco for two-thirds of the distance. Mr. Kindel has been driven out of the manufacture of upholstering goods and of spring beds in Denver because of similar differences. He also wished to manufacture albums in Denver, but was forced to locate in Chicago because the freight rate on books from Chicago to San Francisoo was $1.75 per hundred, and from Denver to San Francisco $3, while the Denver manufacturer had to pay 97 cents freight on his ravy material (paper, etc.) from Chicago to Denver — $3.97 total against $1.75 for the manufacturer located at Chicago." (^) Alabama Midland Case, i68 U. S. 144. (") For fuller discussion of the long haul cases and the whole subject of discrimination, see the decisions and reports of the I. C. C. and "The Heart of the Railroad Problem or The History of Discrimination in the United States," Little, Brown & Co., Boston. (") Ind. Com. IV, 67. "Boots and shoes are carried from Chicago to Colorado common points at $2.05 per hundred; from Chicago to California at $i.§o per hundred. If a jobber in Colorado wishes to ship boots and shoes to California he must pay $3, making a total freight rate of $5.05 from Chicago to California in this way. Cotton piece goods under commodity rates are shipped from Boston to the Missouri River for 52 cents per hundred; while the rate from the Missouri River to Denver is $1.25 for a haul of one-third the distance. And the rate from the Missouri River through Denver to California is only $1." 34 The Railways, the Trusts, and the People. Spokane supplies another illustration of place discrimination. For example, the dealer in paints and oils at Spokane must pay $1.21 a hun- dred from Chicago against 90 cents from Chicago to Seattle, 250 miles further west. The Spokane dealer pays $93 more freight per car than the Seattle dealer pays for 250 miles more transportation. The rate on bar iron from Chicago to Spokane is $2.07 a hundred against $1.25 to Seattle; iron pipe $1.00 to Spokane, 50 cents to Seattle; lamps $2.35 to Spokane, $1.10 to Seattle; belting $3.13 to Spokane and $i.6s to Seattle; mining car wheels $1.26 to Spokane and $0.85 to Seattle; cottons $1.75 to Spokane, go cents to the coast; soap (toilet) $1.23 to Spokane, $0.75 to coast cities; wire and wire goods $2.35 to Spokane, $1.50 to the coast; sewing machines $2.25 to Spokane, $1.40 to the coast ; typewriters $5.96 to Spokane, $3 to the cities of the coast. In general the rates from the east to Spokane are the through rates to the coast plus the local rates from the coast back to Spokane." The preference which Tacoma, Seattle, etc., have over Spokane is about 80 percent, which has proved quite sufficient to enable dealers on the coast to ruin certain important business interests of Spokane." Iowa supplies another excellent illustration of the grievous place discriminations practiced by the railroads. Iowa's farmers are asking why they should have to pay 50 to 100 percent more for shipping their products than the Nebraska farmers who live several hundred miles further west. Corn rates now (1905) are 13 cents per hundred from Omaha (1400 miles) to New York and 25 cents from Dennison, Iowa, (1341 miles) to New York; 25 cents also from Boone, Iowa (1252 miles) to New York, and the same double rate holds for many other points much nearer the metropolis than Omaha. And such discriminations between contig- uous markets do not violate the Interstate Law. There is no require- ment that one railroad line shall not charge less for a given distance (") Senate Committee on Interstate Commerce, 1905, pp. 2930, 2940. (IS) Spokane is a great railroad junction, but competition has been suppressed by agreement between the lines, while competition is still active at Tacoma and Seattle, so that under the decision of the Supreme Court the railroads are free to discriminate against Spokane. Aside from any question of competition, the railroads want to build up Seattle. They have invested a great deal of money in docks and facilities for doing business there. The manufacture of wooden pipe was fiourishmg in Spokane. The company was shipping two carloads dailv and Its pay-roll was $3000 a month. A rival factory in Seattle, backed by the big lumber firms of the coast, got the railways to make rates that enabled it to lay down the manufactured pipe in Spokane about 60 percent cheaper than the Spokane factory could make it. The situation came to light November 1903, two months after the rates went into effect, when the Spokane factory came into competition with the Seattle factory for a contract at Butte. The bid of the Seattle firm was less than the pipe could be sold for at Spokane by the factory in that city, and Butte is 384 miles east of Spokane. The railroad rates shut off the_ Spokane factory^ from the East entirely. In about eight months that flourishing manufacture m Spokane was wiped out. (See statements of Chamber of Commerce of Spokane and testimony of its representative, Brooks Adams Senate Committee, 1905, pfi. 2928, 2917.) There was no water competition here to make an excuse for discrimination, for the cut was made from Seattle east to Spokane and points still further east. The paper box manufacture was forced out of existence in Spokane by similar discriminations. Eastern factories can lay down the boxes in Spokane cheaper than the local factories can get the strawboard. So with other trades. The manu- facture of sash would be rapidly developed if it were not for the grievous dis crimination on window glass, 1. e., $1.38 from Pittsburg to Spokane against 00 cents to Portland, Seattle, etc. ^ Railway Favoritism. 35 than another railroad line charges, and even on the same line the long and short haul clause yields to any condition of competition. When Dubuque wants to buy things from the South it must pay much higher rates than Milwaukee, Madison, Chicago, Freeport, etc. Manu- facturers in Fort Dodge and Dubuque, Iowa, have to pay higher rates to the Pacific than manufacturers in Chicago and the East. Iowa raises corn, cattle and hogs and would like to have packing houses, but cannot because of the discrimination in favor of Chicago and Missouri River points." Iowa business men also say that small poultry and dressed meat concerns cannot compete with the big packers on account of the private car system and the concessions granted the car lines, and they complain vigorously of the discriminations against them in the rate;s on shoes, grain, cattle, iron and steel, etc. "The rail- roads have decreed that Iowa shall not be a manufacturing state," said Hon. A. B. Cummins, Governor of Iowa, to the Senate committee this year. "Why do you say that the railroads have decreed that Iowa shall not become a manufacturing state?" "I reach that conclusion," replied the Governor, "simply because all our manufacturers, when they attempt to reach beyond our own state, meet rates that so discriminate against them that they cannot compete with manufacturers elsewhere." In the South many complaints have been made of a railroad method called the "basing point system," which rests on the same principle of discrimination in favor of competitive railway points that is in vigorous use in all sections of the country. The railroads name certain towns as distributing centers and competing points, fix the rates to and from these points and make rates to and from other localities by adding to such through rates the local charges in force between the distributing centers, or "basing points" and said other localities. For example, Jacksonville is the main basing point in Florida, and rates to other destinations are the rate of Jacksonville plus the local rate from Jacksonville to destination, even tho the destination is nearer the point of shipment than Jacksonville." Atlanta is another basing point. Lagrange is 71 miles nearer New Orleans than Atlanta, yet the rates to Lagrange have been made so much higher than to Atlanta as to enable Atlanta dealers to ship goods from New Orleans through to Atlanta and then back to Lagrange as cheaply as the goods could be shipped direct to Lagrange." (") Senate Committee, 1905, p. 2040. (") Senate Committee, 1905, p. 48. (") Interstate Commerce Commission Report, 1899, p. 68; 7 Interstate Com- merce Commission Decisions, Dec, 1897, p. 431. The Commission ordered that the charge to Lagrange should not exceed the rate for the longer haul to Atlanta and two years later the Circuit Court sustained the order, Dec, 1899 (102 Fed. 36 Relations of the Railroads to the Public. The Commission says "Our annual reports to Congress and reported decisions in cases have uniformly condemned this distributing center theory of rate making, but the Southern carriers have resisted our efforts to correct the practice," " and the courts have refused to compel them to obey the orders of the Commission, holding that differences of condition created by the railroads themselves are insufficient to take the case out of the law, a ruling that practically destroys all the strength of the long haul clause. REBATES AND THEIR SUBSTITUTES. The word rebate is used in two different senses in railroad literature. In the narrow sense it means a sum of money paid back to a favored shipper as a refund upon his freight- rate. In the broad sense it means any sort of favoritism — any concession or preference that accomplishes the same purpose as a refund on the freight-rate — any unjust discrimination that gives one shipper or certain shippers an unfair advantage over others. For many years the cash rebate constituted the prevailing method of discriminating between one shipper and another, and such rebates are still in vigorous use, tho some modem substitutes now hold the chief place in the affections of railway managers. Years ago A. J. Cassatt, of the Pennsylvania Railroad, testified that in 18 months the Standard Oil had received $10,000,000 in rebates. It is estimated on high authority that the Beef Trust is receiving now some $25,000,000 a year from the railroads in rebates or their equivalents. Both these trusts were founded on the rebate, and many others have been built on the same foundation. In the seventies, in conspiracy with the oil combine, the railroads running into the oil fields doubled freight rates except to the combine, and paid over to the combine the excess col- lected from its competitors. It was agreed that the combine should have rebates averaging $1 a barrel on the 18,000 barrels produced daily in the oil regions. This was a rebate to the combine not only on the shipments made by the combine itself but on all shipments made by its competitors also. ?^Po £°^^'J"" 'll^'^''■''^''• "^A^' °* Appeals reversed the decision in May, 1901 (108 Fed. Rep. 988), and in May, 1903,. the Supreme Court affirmed the ruline of the Court of Appeals agamst the Commission (190 U S 273) « ,^""1 5^?; '^95. P- 29- See Louisville & Nashville c"ase i,'l. C. C. Decis i-5^. Henry Clews, a leading banker and financier of New York and author of "Twenty-Eight Years on Wall Street," said in the Railway Age for 1891, p. 763: "The stock of a leading rail- way, which in 1880 sold at 174 sold in 1885 at 22. This vast shrinkage was not owing to panic or to stringency of money, nor did it arise from a diminution of traffic on the original line; but it was because consolidation had been pushed to an extreme by the directors." The manipulations of the giant operators often affect not only their own stocks but the stocks of other roads also. In an arti- cle in the Weekly Financial Review about the same time as the Railway Age referred to, Mr. Clews said : "Judgment passes for little in estimating the future of many securities, for the market is almost wholly under the control of comparatively few persons, whose operations must inevitably influence the value of thousands of millions of stocks and bonds. "^ C^) From Banker's Magazine for June, 1892, edited by Albert S. BoUes, a noted writer on finance, I take the following: "There are two widely differing theories concerning the management of rail- roads in this country; one theory is that profits should be acquired from fluctuations in stock, and the other is that profits should be acquired in the old-fashioned way, by performing a useful service. . . . Of course, many railroads are not divi- dend-earning, and with these the profits to the managers and those who are allied with them must come from stock fluctuations and from whatever sucking arrange- ments can be devised whereby their vitality or sustenance can be acquired by the favored few who are in control. Unfortunately, there are many railroads in this condition, the history of which is too well known to require description. Once in control, the way is easy to retain it and to make money by a thousand devices which ingenious and unscrupulous managers are constantly planning and putting into operation. . . . When a railroad is properly managed and earning dividends, a policy of development is adopted. . . . Only by such a policy can our road» ever become great, commanding the confidence of the people, and fulfilling their highest uses. . . . The difference is clearly seen by contrasting a road of this character with one that is run by the Wall Street method for stock-jobbing pur- poses. By this method dividends are not regarded as of so much consequence to Gambling and Manipulation of Stock. 123 Sometimes railway magnates do not stop with mere variations of stock values, but wipe the stock out altogether. Prof. Ely says: "American railways have frequently been managed by those who wished to bankrupt them in order to 'freeze out' cer- tain interests." Perhaps the word "frequently" may give too strong an impression, but it is beyond question that in a con- siderable number of cases directors have purposely so managed - that their roads should lose money or become involved in some way, so as to be thrown into bankruptcy, in order that they or their agents might buy back the roads at foreclosure sale for the amount of the bonds and so destroy the stock and squeeze out entirely all interests except their ownership by the new purchase and the lien of the bonds they assume. Our railway system as a whole must not be deemed fraudu- lently speculative. Stock jobbing is not the main purpose with most of our roads, tho it is an element more or less strongly developed or else an incident in all. The point is that our sys- tem leaves the door open to such practices and intensifies the prevalent longing for unearned gain by the prospect of the pro- digious sums to be realized, and by the facilities afforded by the possession of irresponsible power. Our railway system has opened the way to fortune by constructive effort and honorable service, or by speculative and fraudulent activities. Men of high character have adopted the former method, while men with large ability but consciences more or less below par have chosen the latter. Many roads have been honestly built, and some have probably been managed honestly throughout their history ; but many others were built for speculative purposes, or have been operated more or less with such ends in view, and even our best roads voluntarily or by compulsion have absorbed lines of speculative character." What is the nature of these stock transactions ? Is the win- ning of millions by betting on railway stocks with all who investors as an instrument or argument for affecting the value of the stock. . . . The cardinal idea always is, how can the road be maintained and manipulated so as to cause the largest variations in the stock and the most money for the man- agers? . . . There is a considerable class, having means and nothing to do, who perhaps might just as well lose their money in poker, railroad or grain specu- lation as in any other way, for this furnishes about the only source of amusement to them; but, after all, there is no reason why railroads should be managed so exclusively for the amusement of this class." (*) The New York Central,^ for example, had to acquire the West Shore road in self-defense; The Pennsylvania System felt compelled to absorb the South Penn- sylvania Company; etc. 124 Relations of the Railroads to the Public. choose to take the offer, any different from winning thousands by betting in the Louisiana lottery ? Is the buying and selling of large amounts of stock on margin in the stock exchange, es- sentially different from buying and selling small amounts of the same stock on margin in the policy shops ? Is it really any nobler to bet a million on the rise of stocks you know you can and will make rise, than to bet a hundred on a game of cards with a sure thing in trumps and aces up your sleeves ? There is a difference in results, of course. The man who wins millions on the stock exchange is petted and admired, whether he fixes the game or not; but policy shop people and card gamblers are not admitted to good society, and are under the ban of the law because, I suppose, they attract the poor who cannot afford the luxury of gambling, and who ought to be at work instead of trying to imitate their superiors in Wall Street ; moreover, if you fix the game at cards, in some parts of the country, at least where the sense of fair play finds explosive ex- pression, you are liable to get shot or have your head broken on the spot. But with all the difference of tangible results to the actors, is there any real difference in the ethical nature of the proceed- ings? Is there any difference in the effect upon the morals of the people or the ideals of youth, except that the giant gambler of the railways, with his colossal winning, does more than the little man to make a speculative life seem more attractive than a life of honest labor?' Chapter VIII. RAILROAD GRAFT AND OFFICIAL ABUSE. Scratch our railroad system almost anywhere and you'll find graft. "Graft" is the street name, fast becoming the literary name also, for the fradulent perversion of power or property (') After following the history of one of the special epochs of railway specu- lation a famous railroad president said: "The stock exchange revealed itself as a haunt of gamblers and a den of thieves; the offices of our great corporations ap- peared as the secret chambers in which trustees plotted the spoliation of their wards; the law became a ready engine for the furtherance of wrong, and the ermine of the judge did not conceal the eagerness of the partisan; the halls of legislation were transformed into a mart in which the price of votes was higgled over, and laws, made to order, were bought and sold; while under all, and through all, the voice of public opinion was silent or disregarded." Railroad Graft and Official Abuse. 125 to private advantage. Every chapter so far in this book has contained illustrations of railroad graft. There is graft in con- solidation for the purpose of keeping rates above the fair com- petitive level and squeezing an unearned increment or monopoly profit out of the public. There is graft in the giving of free passes and rebates, excessive mileage, and elevator fees, mid- night tariffs, favoritism in the distribution of cars, speed of transport, etc., private car and terminal railroad abuses, and all the multitude of devices by which railroads give unjust ad- vantages to favor shippers, or to localities and industries in which the managers or their friends or other persons with a pull are interested. There is graft in the building of giant monopolies which are simply fortresses of industrial and politi- / cal graft. There is graft in the railroad lobbies, the manipula- / tion of nominations and elections, the purchase of legislators, the packing of committees, the subsidizing of newspapers and V other means by which the railroads seek to control politics and change the form of government in this country so that we may not have republican government or government by and for the people, but corporation government or government by and for the railroads and their allies. There is graft in the giving of stock to influential men, the watering and inflation of capital, and the manipulation of stock for gambling purposes. And there are many other forms of railroad graft that we have not yet described, a few of which may be noted in this chapter. Mr. , a railroad magnate whose name is known through- out the country, bought large tracts of coal land and sold it at an enormous advance in price to a railroad he controlled. This is only an illustration of a common species of railroad graft. Directors buy lands, buildings, steamship lines, branch railroads, and other properties, and sell them to railway companies they control. It is the old case of a trustee using trust funds to make a purchase from himself at a price fixed by himself — the seller acting as agent for the buyer and determining what price he shall pay. The contract power is abused in other ways. For example, the president and two directors of a certain railroad who owned three-fourths of the stock of a coal company, made a contract with themselves by which the railroad was bound to buy its 126 The Railways, the Trusts, and the People. coal of them at a specified price and carry their coal at a speci- fied rate. Jim Fisk at one time ordered heavy speculative sales of the stock of an express company, which held a contract with the Erie Railway. Then the contract was declared annulled, the express stock fell, and Mr. Fisk realized the diflference. He then ordered heavy purchases of the same stock on margin, after which he renewed the contract with the express company. The stock rose again, and Fisk a second time swept the street.' In Ohio in the early years railways obtained the right to issue currency, and the Ohio Railway Company issued $400,000 and never redeemed a dollar of it, and bled the state besides to the extent of $249,000 on stock through the law under which the state issued bonds in payment for stock of any transportation company to the amount of 50% of all the stock it could sell to others.' Railroad bonds have been used to pay the personal notes of directors and officers. Railway managers have sought receiver- ship to avoid paying debts rather than to protect the property for the sake of creditors.' One of the commonest forms of railroad graft is the evasion of taxes, or arranging matters so that the public will have to pay a part or the whole of the share of taxation that should rest upon the railroads. This is accomplished in many states by procuring under-assessment of railroad properties so that the companies pay only a half, a third, a tenth, or even a twentieth of the tax they would pay if assessed at the same ratio to real values that is applied to small property holders who have no free passes to give the assessors nor any other pull with the powers that be. Sometimes railroads even secure entire exemp- tion from taxation for a term of years, as in Vermont, or in perpetuity, as in New Jersey, where "one-quarter of the prop- erty of the state belongs to the railroads and is exempt from taxation," compelling the people to pay $2,000,000 annually in taxes that ought to be paid by the railroads.* Not a few railroads have been built for graft — built for what (}) "Men and Mysteries of Wall Street," p. i68. (2) "The American Railroad," "Magazine of Western History," vol. iz, p. 95. (2) Moorfield Storey, "Current Transportation Topics," vol. 192, p. 113. (*) McClure's Magazine, April, 1905, p. 658, C. I,. Corbin. See further the chapter on "Defiance of Law." Railroad Graft and Official Abuse. 127 the promoters could get out of them in the way of construc- tion profits, etc., or through sale to companies controlled by them. Many a time a few promoters, with plenty of energy and some capital, have organized a railroad company and is- sued stock, reserving enough to keep control, bonded the road for full value, secured state and municipal aid and national assistance also perhaps, and voted themselves a construction contract at an enormous margin of profit, by means of which they got out of the road every dollar they had put into its pro- motion, with millions in addition, and yet retained the owner- ship and control of the railway in which not one cent of their money remained invested. Among the worst cases of this sort of railroad graft are those dis- closed by the Congressional investigation of the Pacific roads. These companies received enormous land grants and subsidies from the National Government and the States, more than enough to build and equip the whole of the lines. Yet they bonded the roads for twice what they cost, and in addition issued stock to an amount largely in excess of the actual cost. The people really paid for the roads, but the promoters took the ownership and possession, raised millions of dollars by the issue of fictitious securities, and through construction frauds and other inequitable practices, put the bulk of the money into their own private pockets." In the case of the Central and Union Pacific roads, resources amount- ing to $260,000 a mile were put into the hands of a few men to do work costing apparently about $31,000 a mile," and the public that paid for the roads several times over got nothing but a second mortgage for part of the money they put in.' (°) Report of the United States Pacific Railroad Commission, Senate Executive Document gi, 1887. (°) Adams says the original cost of construction of the Central and Union Pacific roads was put at $60,000,000 for the 1919 miles, or $31,000 a mile. A stock capital of $100,000,000 was authorized for each of the roads, or $200,000,000 total, on which perhaps $20,000,000 was realized. "A curious mystery hangs over this, part of the financial arrangements of the concern. The rest is very clear. There was a Government subsidy of $30,000 a mile and $30,000 a mile of mortgage indebtedness; there was a land grant of 12,800 acres per mile, and where there were states there were bonds guaranteed by the state, and gifts of real estate from cities, and there were millions of net earnings applid to construction." (Chapters of Erie, pp. 407, 408.) This agrees with Sidney Dillon's statements as to cost, indicating that the United States Pacific Commission, severe as it made its condemnation of the methods of the promoters of the Pacific roads, was too liberal in its estimates of cost. It looks as tho either the land grants or the subsidies were sufficient to build the roads, making the rest of the resources clear profit. (') The Central & Union roads received loans amounting to $61,000,000. The national bonds were at first secured by a first mortgage on the road, but in 1864 Congress was persuaded to let the company issue bonds of its own to be a^ first lien, reducing the Government claim to a second mortgage. By 1895^ the original debt and the arrearages of interest amounted to more than 125 millions, secured only by second mortgage on the main lines (2500 miles of road), about $55,000 a mile, or twice as much as the cost per mile of building and equipping Pres. J. J. Hill's Great Northern Railway from Minneapolis to Seattle, which was constructed without the aid of a dollar of public money or an acre of public land. Congress incorporated the "Union Pacific Railroad Company" July ist, 1862, 128 Relations of the Railroads to the Public. The Central Pacific was constructed by four men: Hopkins, Stan- ford, Crocker and Huntington; two of them small storekeepers in San Francisco, and none of them capitalists. Their united funds when they began in i860 were only $120,000. When one of these four promoters died in 1888 his estate was valued at $30,000,000, and all of them became multimillionaires to a high potency. They got a charter first in California. Then they went to Washington and secured a land grant of millions of acres, and subsidies at the rate of $16,000 a mile for a distance of 7.18 miles east of Sacramento, $48,000 a mile for 150 miles thro the Sierra Nevada, and $32,000 a mile for the distance from the eastern base of that mountain range to its junction with the Union Pacific. With land grants and subsidies, bonds issued to private in- vestors, and the stock, they had ammunition enough for their purposes. As directors of the company they voted themselves construction con- tracts amounting to nearly 121 millions, on which they made a profit of more than 62 millions, the cost of construction being only a little over 58 millions as ascertained by a Congressional commission in 1887.' The "Credit Moblier Company" of the Union Pacific is the most famous of the construction rings in railroad history, not because it was the worst, but because it involved so many members of Congress as stockholders in the concern to which indirectly they voted lands and subsidies. One of the promoters of the Union Pacific, a member of Congress from Massachusetts, by the name of Oakes Ames, distributed stock among Congressmen, and by this and other forms of bribery disclosed by a subsequent investigation, members and government officers were led into serious departures from the path of duty, and large masses of graft dropped into the laps of the promoters. The Union Pacific was chartered in 1862, as stated in Note 7. Its $100,000,000 authorized capital was "to be paid for in cash." Its enor- with $100,000,000 capital. The company was granted a right of way 200 feet wide through the public lands, and alternate sections along the whole line, 20 miles wide (5 sections on each side of the line), together with subsidies at the rate of $16,000, $32,000 and $48,000 per mile; the latter rate to apply to 300 miles of the most difficult mountainous part. The Government loan was to be a first mortgage and there were to be two Government directors. Similar franchises and subsidies were at the same time given to the Central Pacific Railroad Company. These donations alone were sufficient to build and equip the roads. But the promoters were not satisfied. They had discovered how easily Congress could be managed, were very sorry they had not asked for more, and determined to correct the mistake. So in 1864 they asked for large amendments to their charter and Congress acceded to their demands, giving them a public land^ grant of 10 alternate sections per mile on each side instead of 5,- — 40 miles wide instead of 20. Tlie company was also authorized to issue first mortgage bonds to private lenders for an amount equal to the Government loan. This made the United States loan a second instead of a first mortgage. And in return it was provided that the Government should have 5 of the 20 directors instead of two. At the lowest estimate the national contribution was $45,000^ a mile, besides the right of way and all the timber, iron, and coal within six miles of the lines. The promoters got from Congress more than the cost of the road, bonded it again to private investors for all it was worth, issued stock also^ beyond the cost of construction, sold and gave away a good deal of it, and still had the_ road and the control of its earnings for themselves. (In relation to the squeezing of the Government in the Union Pacific reorganization, etc., the reader will find some very interesting matter in the Outlook for July 24, 1897, p. 719, and in "The Union Pacific Deal," New York World, October 26, 1897.) (') See Executive Document No. 51, Fiftieth Congress, ist session; and Senate Report 830, S3rd Congress, 3rd session, January 28, 1895, pp. 94-95- Railroad Graft and Official Abuse. 129 mous land grants with cash subsidies of $16,000 to $48,000 a mile, form- ed an excellent basis for plans of plunder, and the Credit Mobilier Con- struction Company proceeded to extract the milk from the cocoanuL The Union Paciiic Company built 238 miles at a cost of $27,000 a mile and then made contracts with Oakes Ames et al. to complete the road. Oakes Ames, who was a member of Congress from Massa- chusetts, turned the building over to a railroad construction company he controlled, and this construction company, called the "Credit Mo- bilier," built the road under contract to receive the following rates per mile: $42,000 a mile for the first 100 miles; $45,000 for the second 100; $96,000 a mile for the third 100; $80,000 for the fourth; $90,000 for the fifth; and $96,000 for the sixth, and these rates per mile were made to apply for the 238 miles already constructed, less the actual cost, so that for the first 238 miles the Credit Mobilier, without a stroke of work, cleared a profit of $5,832,000 on work it had nothing to do with. The Congressional investigation committee found that the construc- tion profit on the whole road above all expenses was at least $43,925,328; that the national appropriation had been "distributed in dividends among the corporators ; that the stock had been issued, not to men who paid for it in par in money, but who paid for it not more than 30 cents on the dollar in roadmaking; that of the government directors, some of them have neglected their duties and others have been interested in transac- tions by which the provisions of the organic law have been evaded; and that at least one of the commissioners appointed by the President has been directly bribed to betray his trust by the gift of $25,000." ° The committee found that the cost of constructing the main line from Omaha to Ogden was about 51 millions, for which the construction com- pany received nearly 95 millions. Oakes Ames and James Brooks were expelled from Congress, and the United States brought suit in equity, charging that the cost of the road was much less than half the stock and other liabilities; that much of the stock and bonds were issued not in the interest of the com- pany but by the m.anagers unlawfully to enrich themselves, and various other frauds and corrupt practices on the part of the directors and managers of the railway. But the court held that only the corporation or a shareholder could bring suit for such frauds. The grant of land and bond subsidies was absolute, without condition precedent. The United States might, however, in view of said frauds, proceed to a for- feiture of the charter, and through the medium of a receiver close out the affairs of the corporation. But no department of the government followed up this intimation of the court with proceedings for forfeiture of the company's charter." The noise made by the explosion of disclosure has led people to (•) Report of the Wilson Committee, pp. iii, iv, et seq. 0") See United States vs. Union Pacific Railroad Company, 98 U. S., 569; Poland Committee's Report on the Credit Mobilier, House of Representatives, 77, 42nd Congress, 3rd session; Wilson Committee Report, 78, 42nd Congress, 3rd session; Report of Commission of 1887, Executive Document 51, soth Congress, ist session, and Senate Report 830, 53rd Congress, 3rd session. 130 The Railways, the Trusts, and the People. believe that the Credit Mobilier was something unusual in railway his- tory. But as a matter of fact it was a common device to organize such construction companies, by which the officers of the railroad vir- tually hired themselves to construct the road at an exorbitant price, thus defrauding and impoverishing all the stockholders not in the ring. As J. P. Davis says in "The Annals of the American Academy of Po- litical and Social Science," September 22, 1896, p. 5S: "Undue im- portance has been attached to it, because its stock happened to serve as the basis of a political scandal. Similar construction companies were used on nearly all parts of the Pacific railways, and particularly by the Central Pacific Railroad Company; in fact, they were in general use in the promotion of railway enterprises in the United States until after 1880."" We have already spoken of the Central Pacific. The Northern Pacific was chartered by Congress, July 2, 1864, and received a land grant of 12,600 acres per mile in the states, and 25,200 acres per mile in the territories. Work was begun in 1869, and when the crisis of 1874 stopped construction for a time, the section from Duluth to Bismarck, Dakota, had been completed. Not quite $22,000,000 had been spent on lines aggregating less than 600 miles, and by no means every dollar of this expenditure procured a dollar's worth of property, yet through con- struction frauds and other inequitable proceedings the capitalization had been piled up to the enormous sum of $143,000,000 — ^$100,000,000 in stock and about $43,000,000 in bonds. The transcontinental lines, by virtue of their vast extent, offered peculiar opportunities to unscrupulous men to commit frauds on a gigantic scale; but as already stated, construction contracts essentially like those of the Credit Mobilier were common all over the United States. The New York, West Shore and Buffalo Railway, for example, contracted with a construction company composed of the projectors, to pay $100,000 per mile for single track, and $200,000 a mile for double track, prices that were more than double the cost of building. A Van- derbilt case will show how vigorously Eastern railway men applied this method of inflation. The South Pennsylvania Road, built by Commodore Vanderbilt to compete with the Pennsylvania Road has been shown to have cost somewhere between 6 and 10 millions. A responsible contractor had offered to build it for $6,500,000. Yet a construction company, com- posed of Vanderbilt's clerks and brokers, received $15,000,000 for build- (11) "It is a well-known fact that railroad companies often contract with them- selves for the building o£ their roads; that is, that on one side of the table it was a railroad company and on the other side it was a constrliction company; and that the construction company would contract to build the road for its stocks and bonds. And the experience has been that in such cases the railroad companies have been very liberal in this allowance of stock and bonds to the construction company." (Com. on Valuation of Railways, National Convention of Railway Commissioners, 1900, p. 103.) Sometimes the construction company makes a public boastful statement of the graft it has secured, altho it does not use that term in describing its profit. For example, in 1883 the North River Construction Company (N. Y.) in ^its prospectus stated it had among its assets securities of the par value of $75,000,000 received for work costing in reality only $34,000,000. (George C. Crocker, ex-Railway Com., Mass., Nat'l. Con. Railway Coms., 1904, p. 66.) Railroad Graft and Official Abuse. 131 ing it; and the syndicate of capitalists that supplied the money to do the work got $40,000,000 in securities, $20,000,000 bonds, and $20,000,000 stock. The cost of the road was less than $10,000,000, so that the whole of the stock and half of the bonds were fictitious. "In the same manner, tho not in the same proportion, the thing was worked all over the union." " Excessive land grant and subsidy graft has not confined its ravages to the Pacific roads any more than construction frauds. In Iowa, for example, S)000,ooo acres of land were given to the railways, an area almost as great as that of the whole state of Massachusetts." And be- sides this the contributions in taxes, rights of way, depot sites, and gifts of money to the railways of this one state are estimated by a leading railroad attorney at $25,000,000, and by William Larrabee, ex- Governor of Iowa, at $50,000,000." The first Congressional right of way for a railroad was granted in 1835 to a Florida line. The grant conceded 30 feet of land on each side of the railway, and the use of the timber within 300 feet on either side, and 10 acres of timber at the terminus. The width of the "right of way" greatly increased in subsequent grants. In 1850 the Illinois Central was given alternate sections to a width of six sections on each side of the line. As a section of public land is a square mile or 640 acres the company got 6 square miles or 3840 acres for each mile of railroad. (12) Van Oss. "American Railroads as Investments,'* p. 126. (13) Within 6 percent, the area of Massachusetts being 5,300,000 acres. (1*) In 1856 Congress granted 6 sections per mile to aid in constructing four railways in Iowa. One of these roads, the Mississippi & Missouri, had been surveyed in 1852, and part of its line was already built in 1856, so that the land grant as to that part was a gratuity without shadow of justiiication. The price of the lands reserved by the Government within the land grant belts (i. e., the alternate blocks between those given to the railways) was raised from $1.25 to $2.50 an acre, so that the settlers had to pay, not only for their own lands, but for those donated to the railroads. If they bought from the railroads they had to pay more still. The Chicago, Rock Island, and Pacific Railroad Com- pany sold its lands at an average of $8.68 per acre, and the Chicago, Burlington & Quincy sold at an average of $12.17 per acre. To these and other roads in Iowa Congress granted over four million acres of public lands. More than 1,000,000 acres of the finest lands in the state went to the Dubuque and Sioux City Company. If we estimate the value of these lands at only $8 per acre (and by skilful location of stations, workshops, etc., they could easily be made to average more than that in a little while after the road was completed) — even at that low average, the value of the grant was greater than the whole cost of building and equipping the railway. The total of the lands given to all the land grant roads was more than 12 sections, or over 7,680 acres per mile. If the value of these lands in city, town, and country averaged $8 per acre, the gifts these railroads received in land _ alone amounted to $68,540 or more per mile. The average cost of building and equipping the railroads of the United States is placed by high railroad authority at $30,000 per mile of line. Even if the land gift values be estimated at the low average of $4 an acre, they would more than cover the whole cost of the land grant railways. . , "But," says Governor Larrabee, writing in 1893, the land grants form orily a part of the public and private donations which have been made to .Iowa roads. Including the railroad taxes voted by counties, townships, and municipalities, the grants of rights of way and depot sites and public and private gifts m monejf, these roads have received subsidies amounting to more than $50,000,000, or enough to build 40 percent of all the roads of the State. There is no doubt that the contributions of the public toward the construction of the railroads of Iowa is several times as large as the actual contributions of their stockholders for that purpose." And adding the national land grants to these railways, the total values contributed by the public were undoubtedly more than the whole cost of constructing and equipping the roads. 132 Relations of the Railroads to the Public. This was only the prelude." In 1856 Congress granted Minnesota large tracts for railways. The legislature immediately parceled them out to four or five companies, six sections to the mile of railway. Capi- tal demanded more. In addition to the charters and the land it wanted a loan of $5,000,000 of bonds to be issued by the state. This was agreed to and work began. About $3,000,000 of the state bonds were turned over. Then came the panic of 1857. The bond funds were gone beyond recall, but the lands and road-beds were recovered and farmed out for completion of the construction, in most cases to the same men as before. But the appetite for public property and privilege was not j'-et appeased. Capital wanted more. Finally (in 1866) Congress granted 4 additional sections to the mile. The railway lands had been by law forever exempted from taxation in 1857. The railroads demanded that the Constitution of Minnesota be amended so as to ensure this immu- nity from taxation by provision of the organic law. This was done in 1S71. The promoters had a gift of 10 square miles of public land per mile of railroad, and a loan of millions of public money with which to build the roads and repay the state loan from the profits of traffic fur- nished and paid for by the people, and the railway lands were perpetually exempt from taxation. But still they were not satisfied. They said: "There are other land we ought to have. Congress has granted millions of acres of swamp lands to the states for internal improvements. What internal improvements are so useful as railways ! Give us these lands." They were given. "Towns and cities must give us ground for sta- tions, yards, and workshops," continued capital, "and individuals must (") The rapid growth of transportation influence in government is vividly shown by the ascending scale of land grants and subsidies. In 1802 five percent of the sales of United States lands in Ohio was appropriated to the construction of roads. In 1827 one-half of two sections wide on each side of the route was given for a road from Sandusky to Columbus; 1835, to a Florida railroad, 30 feet each side; 1836, New Orleans and Nashville, 80 feet wide, and alternate sections in even numbers for six sections wide on each side; 1852, Hannibal and St. Joe railroad, six sections wide on each side, etc. In 1862 the system of land grants was changed from the State plan to direct grants from Congress to the corpora- tions. Then we have grants to the U. P., C. P., K. P., etc., right of way 200 feet on each side, with land for stations, etc., every alternate section of public land to the amount of five sections per mile on each side, and United States bonds to the extent of $20,000 a mile. From 1863 to 1871 various grants were made, running up to ten sections or twenty miles wide on each side, with ten additional miles on each side as indemnity for lands previously sold or reserved within the twenty mile limit; and the reservation of minerals was released so far as to carry to the railroads the title to all coal and iron found in the lands. To cap the climax the Northern Pacific got forty miles wide on each side, with ten miles more on each side for indemnity purposes, coal, iron, timber and $20,000 subsidy per mile. We cannot go fully into details, but here are the main points of the record: 1. Five percent of the sales of public lands. 2. Thirty feet on each side of the line. 3. Eighty feet on each side. 4. Ninety feet on each side. 5. One-half of two sections on each side. 6. One-half of five sections on each side. 7. One-half of six sections on each side. 8. Five sections or ten miles on each side. 9. Twenty miles on each side. 10. Twenty miles on each side, with coal and iron and a subsidy. 11. Twenty miles on each side, with coal, iron, subsidy and ten miles more for indemnity. 12. Forty miles on each side with coal, iron, timber, subsidy and ten miles more for indemnity. Railroad Graft and OMcial Abuse. 133 donate the right of way through their private lands." If the people de- murred, they were threatened with change of location to such a dis- tance from existing towns as to destroy them, and build up rivals on the prairie; and in case of refusal this threat was ruthlessly carried out/» The power of the railway builders became almost autocratic. By threats like those just mentioned, by gifts of stock to influential men, and by various methods of political pressure, they compelled the legisla- ture to authorize, and municipalities to vote bonus bonds to aid the construction of their lines. They made politics as much a business as the construction of railways. Caucuses were packed, and laborers in construction gangs were compelled to vote as their bosses directed, at least once, at each election. The answer of the French half-breed member of an early legislature, who shook his head at the tempting offer of $100,000 in railway stock, saying, "Give me instead $10 in cash," has become memorable. Thus early was the corrupting influence of money used to sap the foundations of public morality.'' In addition to all these means of railway rule, there was another tre- mendous power perhaps more influential than any above mentioned; I mean the power to discriminate in respect to rates. This reached a class of business men that could not be swayed by open threat or ordinary bribe. Such men once realizing the force of the railway re- bate or preferential rate and their own helplessness in the face of a power that could ruin them by a stroke in the dark, either seconded the railway schemes of aggrandizement or remained silent while they were enacted. Such is, in miniature, a picture of railway building in one of the leading Western states. Multiply it by the number of states in the great West and you have an idea of railway construction methods throughout our younger states. The reader must not imagine that all our railways were fraudu- lently constructed, nor that all land grants were bad or ill-managed. Many railway promoters were honest men who rendered splendid ser- vice to society. And many gifts of land and public subscriptions to stock hastened the building of railways and the development of the country's resources. Other grants were wholly unnecessary even from the standpoint of the land grant philosophy. The Illinois Central, for example, paid a profit independently of the land grant on every divi- sion as fast as constructed. Even where public enterprise was needed to open up the country, it was a great mistake to transfer public prop- erty to private companies to be used for private profit. That system necessarily involves a scramble for graft. The perversion of public means to private gain, the use of the property of all for the aggrandize- ment of a few, is very bad. And the pressure upon legislators and corruption of officials incident to the railway-aid regime are evils of still greater magnitude. The land grant and subsidy system opened the (") "The Railway Problem"; by President A. B. Stickney; p. ii. (") Ibid. Pp. II and 12. 134 The Railways, the T rusts , and the People. door, and designing men took advantage of it and of the public longing for railroads and fleeced the people in every possible way.^^ Our railroad companies have not confined their inventive genius in the pursuit of profit to the organization of construction rings, or dis- tribution of legislative stock, or payment of dividends out of capital. They have employed many other methods unfit for publication. The Pacific Railway Commission of 1887 found a grievous fraud in the apparent compliance of the companies with the act of Congress requir- ing that the railway stock should be fully paid in cksh. The officers swore to $97,098,000 of stock as fully paid in cash according to law, whereas only $1,797,000 of the stock had been paid for. Then the land grant companies delayed taking out patents on their lands so as to escape taxes upon them. Till patents were taken out the technical title to the lands was in the government, and the roads could not be taxed for them, altho the lands had been given to them and could be claimed by them at any time. They were willing to regard the lands as theirs for all purposes except taxation. It has been a favorite trick to leave the patenting of the lands, so far as possible, till the company wished to sell them, and so enjoy the powers and benefits of ownership without its liabilities. I was told in California (}^) Let us follow the trail of a typical railway scheme of the dishonest sort in. the era of railway building, using the present tense to bring it more directly home to us. A few men with comparatively little to lose, but a great deal to gain, organ- ize a railroad company and plan a location and talk up the scheme, writing about it in the papers until it seems very large and important. Then they appeal to towns, cities and counties along the route for land and bonds. The new road will increase trade and lift values in the towns and cities, and it does not require much genius to persuade them to subscribe. The danger of having the road veer to one side, leaving the town out in the cold and building up a rival, is quite suf- ficient spur to liberality. iEIven the farmers along the line are easily persuaded to subscribe. A man with a farm of a hundred acres valued at $2500 can aiford to take $1000 worth of stock if he can be shown that the railway will probably lift the value of his land that much. When a little stock is sold the promoters make affidavit that a large amount is fully paid up, and ask for a land grant. A little lobbying and promiscuous presents of stock are likely to be effective. When the time is ripe the projectors form a construction company and make contracts with themselves at double, treble or quadruple the cost, and so get the lands and moneys of the railroad into their own private hands, besides the controlling ownership in the road itself. They pay dividends out of capital and then sell blocks of stock at high figures. They buy land and branch railroads, etc., on their own account and sell them to the main railway company at several times what they gave — voting the sale to themselves by virtue of their power as directors of the railway com- pany. They bond the road for its full value, or all they can get capitalists to put up on the security of the road, and, through their powers of contract absorb the money into their own pockets. Finally, having "milked the road for all it was worth," they raise the stock to the highest possible figure by payment of dividends out of capital or out of gross earnings, 'disregarding depreciation and other charges affecting real profit, and then sell out all their holdings in the road, leaving it impoverished and perhaps wrecked — a candidate for insolvency and a receivership. They come out wealthy, perhaps millionaires, while the stockholders not in control lose heavily. When the road is reorganized, the old stock wiped out, and new stock issued, perhaps the very same men or some of them will buy a large interest or even a control m the new company, thus coming again to the ownership of the reorganized road for a fraction of the money they ha;d captured from it in the first era. No wonder thoughtful men have been astonished that such things should be permitted. Professor Bryce quotes Mr. Hitchcock as saying to the American Bar Association in 1887: "Tt is an extraordinary fact that the sovereign power of eminent domain should be put at the disposal of irresponsible men for purposes of private gain with no guarantee that the public interest will be promoted thereby, but when it is perfectly well known that it may be and has been deliberately availed of for merely speculative purposes." (Condensed from "The American Common- wealth," vol. 2, p. 650.) Railroad Graft and Official Abuse. 135 a few years ago that the Southern Pacific still held a vast amount of land, some of it very valuable, but paying no taxes because no patents had been issued. The railroads evaded the law by organizing sham colonization and immigration companies to take up all the railroad land^ that, if not pat- ented in four years, would become liable to entry as homesteads at $2.50 an acre. Another common dodge was to delay construction as long as possi- ble, in order to let the country fill up and lift the value of the com- pany's lands and improve the prospect of immediate profit from the line. It is said that altho the land grants were made on condition of rapid construction, with the idea of opening up the country to settle- ment, the companies, in many instances, managed in large measure to defeat this purpose, and that none of the aided roads, except the Union and Central Pacific and perhaps the California and Oregon, were built until a profit could be seen without the aid of the land grants; and the two former were built with government money. Worse still was the treatment of settlers by the railways and by the Land Office under the influence of the railways. Thousands of set- tlers, who were rightfully on the public lands, were ousted, and their lands and improvements confiscated to the use of the railroads, turned over without compensation by rulings of the Land Department in clear contravention of law. The railroad influence with the land office in Washington was so great that for 25 years, down to 1879, the department frequently handed over to the roads all the lands within the granted limits, regardless of important reservations and exceptions. This obliging conduct of the Interior Department was not only without pretext or shadow of law, but in clear violation of the plain, precise and absolute terms of the law, in cruel and flagrant disregard of the rights of the settlers, and with utter indifference to public well being. And even when the United States Supreme Court in some strong decisions, declared null and void the titles given to railroads for such excepted lands, the department refused to apply the principles of the decisions beyondi the precise cases in which suit was brought, and practically held that each indi- vidual settler must get a separate decree in his own case before a patent could be issued to him for the land to which he was entitled by the law as settled by the court."* The officers of the Interior Department certified millions of acres to ■ the railroads regardless of reservations, exceptions and conditions made in the law. They certified lands when no road had been com- menced and before it was known that the companies would ever be ("*) In October, iSSi, the United States Senate instituted an inquiry into the conduct of the land office. The result may be found in Senate Report No. 362, 41st Congress, ist Session, and to the evidence there published I refer the reader for proof of the statements here made regarding the national land office and the railroad grants, especially the testimony of J. W. LeBarnes, law clerk of the land^ office, who fully exposed the illegal practices, unjust decisions and cor- poration-inspired policy which had habitually marked the proceedings of the land department in the administration of railroad grants and its treatment of the inter- ests of settlers and of the Government, when in conflict with railroad interests. 136 Relations of the Railroads to the Public. entitled to any land except the quantity allowed for the first twenty miles. They certified millions of acres of "indemnity land" when no losses had been sustained and no right to indemnity existed. They re- called or withheld from settlers the patents to which they were entitled, thereby compelling the holders of perfect claims to protect their homes by buying illegal worthless railroad claims or else give up their farms without compensation. For a quarter of a century the national land office could hardly have done more for the railways if it had been a railroad department, with officers appointed and paid by the companies. The total gifts of the public to railways by municipalities, states and nation cannot be accurately stated, but it is known that the national land grants alone have aggregated more than 215,000,000 acres, an area far exceeding the whole of New j> j England and the Middle States, much of it in the finest and most fertile regions of the United States. Since 1850 the Fed- eral Government has granted subsidies to more than fifty rail- roads. Six of these companies received cash sums aggregating $65,000,000, and the Government sustained their credit by pay- ing interest on their bonds to the extent of about $75,000,000, making a cash appropriation of about $140,000,000 to assist six railroads already enriched by empires of land. States, cities, and towns have also contributed large values to railroads in all sections of the country." ('») Municipal and state contributions formed very large items in railway aid. The second report of the Massachusetts Railroad Commission, January, 1871, says that in 1870 a general law was passed authorizing towns of less than 12,000 inhabitants, by a two-thirds vote, to subscribe in aid of railway construction within their limits. Before 1870 such authority had to be secured by special act. The aid authorized by the law of 1870 amounted to $22,000,000 for the whole state, of which $2,351,000 was reported by the commission as already voted by the towns in nine counties: Worcester, $638,400; Plymouth, $225,000; Hampshire, $547,400, etc. Before 1870 the state itself had already made large subscriptions to railways. Massachusetts first identified herself with railroad aid by subscribing to 10,000 shares of the Western Railroad in 1836. And later it involved itself to the extent of $15,000,000 in aid of the Boston & Albany, the Hartford & Erie and the Troy & Greenfield roads. (Report of Massachusetts Railroad Commission, 1870, pp. 13 and 14.) New York State sunk $3,000,000 in the Erie road. The money was given to the railway at first as a loan. But in 1845, the building having come to a stand- still for lack of funds, the state surrendered its claim, to enable the company to raise new capital. The Erie is a good example of the vicissitudes that may happen in the life of a young railway even in a well settled state. It was chartered in 1832, and organized m 1833. The cost of construction was then estimated^ at three millions, of which one million was subscribed. A little later, at the time of the first report, the estimated cost had increased to six millions, and with stock subscriptions of one and a half millions and a loan oiE three millions from the state, work was begun. In 1842 the estimated cost rose to twelve and a half millions; money and credit were exhausted and the insolvent road went into the hands of assignees. In 1845 the state cancelled its claim, and the stockholders gave up half of their old subscriptions. A new subscription of three millions was secured, and three millions more was obtained on a mortgage. At last in 1851, eighteen years after it was begun, the road was opened from Lake Erie to New York City. In 1859 it could not meet the interest on its mortgages and went to a receiver. In t86i an arrangement of the interests involved resulted in forming a new com- pany. In 1862 the old New York & Erie Company vanished under a foreclosure Railroad Graft and Official Abuse, 137 The railroad grants in Minnesota would make two states the size of Massachusetts, one of which was donated to the pro- moters of the Northern Pacific Railroad Company. In Kansas the railroad grants would make the two states of Connecticut and New Jersey. In Iowa, the area granted is larger than Con- necticut and Rhode Island. In Michigan and Wisconsin also the railway pasture is nearly as large. In Montana the grants to one company would equal the whole of Maryland, New Jer- sey and Massachusetts. In Washington also the grants are about equivalent to the same three states, and three states the size of New Hampshire could be carved out of the railway grants in California. The Union Pacific alone obtained 13,000,- 000 acres, the Kansas Pacific 12,100,100, the Northern Pacific 47,000,000, the Atlantic and Pacific 42,000,000, and the South- ern Pacific 9,520,000 acres. The total area given by act of Congress to western roads is nearly as large as the whole extent of the original thirteen states. It is larger than the German Empire and Italy com- _ bined ; larger than the Austro-Hungari^n Empire, Switzerland, Denmark and the Netherlands ; larger than France, Great Brit- ain and Belgium." These lands are worth a good deal more than the whole cost of the fifth mortgage, and the present Erie Company rose from the wreck. The 470 miles of track opened in 1842 expanded to 77Z miles in 1868, and the original estimate of $3,000,000 developed into a construction figure of $50,000,000. How much of this went as profits to the undertakers, who in a double sense so fre- quently laid out the road, I do not know; but there is little question that the work could have been done at much lower cost under good management. Michigan launched out on a grand scheme of internal improvements in rivers, canals and railways in 1837, providing for a loan of $5,000,000, an enormous sum for the state in those days. The state itself built some hundreds of miles of rail- road, but sold them to companies in a few years. Municipalities also put large amounts of money into the development of railroads. Many of the investments proved unfortunate, and the losses were so great that a clause was put in the constitution practically prohibiting the state from making or authorizing the putting of public funds into such enterprises. In other states, towns, cities, and legislatures were equally free in aiding railroad building, one of the most interesting cases being the Columbia & Philadel- phia Railway, built and operated by the State of Pennsylvania on the early Eng- lish plan of a toll road open to any carrier who wished to put his cars upon it — an experiment about which we shall have more to say hereafter. (^°) Some nations that have put large amounts of public land and money into railroads have kept the ownership of the roads in the theory that what is paid for by the people should be owned by the people. In the United States the theory seems to be that what is paid for with private funds shall be private property, and what is paid for with public funds shall be private property also whenever private interests have sufficient influence with our agents to arrange the deal. If our legislators had been voting their own property to the railways instead of the people's property, it is probable that they would not have neglected so persistently the common business principle that he who pays for a thing shall own it. And if the agents of a private individual had given away trust property to a corporation, the courts would have allowed such individual to follow his property and claim it in the hands of the corporation; but Uncle Sam is not accorded equal rights with the ordinary individual in this respect, because, perhaps, he ought to have sense enough to choose agents who will not play such pranks with the property entrusted to them. 138 The Railways, the Trusts, and the People. of the railroads, to say nothing of the gifts to the companies by towns, cities and states. If the public had kept its lands and built the railroads itself, with funds raised by the issue of bonds, or with money raised by progressive taxation, the rentals from the lands and the profits from the railways would long ago have cleared ofif the whole railway capitalization, and rates would now be down about to the cost of operation. It is estimated that every dollar spent on railway construc- tion in new country adds at least $5 to adjacent land values, and much more than that in a developed country, upon the building of needed railways. This increment of land value due to the growth of society, and the expansion of business, under good means of communication, amounting in the aggregate to billions of dollars, could have been retained for the benefit of the whole people. Instead of this, our Government delivered millions upon millions of land and mony to private companies to build railways, not for the people, but for the promoters. It is a serious question whether legislators had a right to give public lands to railway companies, even where the roads were needed and the probable traffic was not sufficient inducement to private capital. There is high judicial authority in this country for the view that public property can only be devoted to public purposes, and that the transfer of property to or for the benefit of a corporation or enterprise in private control is not for a public but for a private purpose, and is beyond the sphere of legislative power on principles that lie deeper even than the provisions of our constitutions, and are inherent in the very nature of free government." The purpose of a private railway is private profit ; the public interest is entirely second- ary, and often wholly lost sight of. When public lands are (*^) See the decisions of the United States Supreme Court in 20 Wall, at 664 and 106 United States, 487; Cooley on Taxation, p. 116 and cases there cited; Judge Dillon's decision in 27 Iowa, 51; the Michigan cases, 24 Mich. 44 and 28 Mich. 228; also 58 Me. 590, 2 Dill. 353, 25 Iowa 54°, 3? Pa. St. 73. These cases and many others declare that legislative power is limited by the great principles of justice for the enforcement of which government is instituted, and that acts in violation of these principles will be held void altho no express provision of the Constitution condemns them. The legislature cannot take A*s property and give it to B, and the substan- tially identical act of giving B a power whereby he may help himself to A*s prop- erty is likewise beyond the limits of legislative authority. And what the legislature cannot do directly it should not be permitted to do indirectly under the guise of a franchise or land grant or monopoly privilege. A tax levied for the benefit of ^ a corporation under private control is void on fundamental principles as beyond legis- lative power (27 Iowa 51; 58 Maine, 590); and on the same reasoning any other act devoting public property to the use and benefit of a private company is clearly contrary to the basic principles of republican government. The Railways and the Postal Service. 139 deeded to a private railway, they become private property and are devoted to the private purposes of the company, the public advantage being merely incidental, and liable even to be de- feated partly or wholly by the dominion of antagonistic private interests. I do not consider that my property is being devoted to my purposes if it is in the hands of another man to use as he pleases for his own profit, and the same rule holds of a state or the nation. Public property, in order to be devoted to public purposes with the clearness, certainty and completeness the law requires, must be held and controlled by the public, and admin- istered by public agents directly and exclusively in the public interest. The agents of the people have no right to give the property of the people to private corporations. Every act of that sort is a breach of trust just as truly as if I employ an agent to manage my farm and he takes it into his head to give a slice of my land to a man he thinks will do some good with it, or who has perhaps given him or his friends and advisors some stock in the enterprise that is to be established on the land. The giving of public franchises and public property to private persons is in itself a species of graft, and a most pernicious species, which, in full development, might carry the ownership of a continent, or of the planet, to a ring of grafters and prac- tically disinherit mankind. Chaptijr IX. THE RAILWAYS AND THE POSTAL SERVICE. Another and most grievous form of railroad graft consists in excessive charges for the carriage of the mails. While railways in other countries carry the mails for nothing or at cost, our Government has to pay much higher rates than private ship- pers. The railway tax on the transmission of intelligence is one of the worst handicaps resulting from our transportation system. For hauling mails the railways receive from the Gov- 140 Relations of the Railroads to the Public. ernment from two to four times as much as they get from the express companies for equal haulage, more than twice what they get for carrying commutation passengers and excess bag- gage equal weights and distances, two to five times their charges for first-class freight, twelve times what they receive for some of their dairy freight, and sixteen times what they get for the mass of common freight. According to the estimate of Prof. Henry C. Adams of Michi- gan University, the Statistician of the United States Interstate Commerce Commission, the average payment to the railways for carrying the mails is i2i/^ cents per ton-mile.^ Prof. Adams is a high authority and his calculation was carefully made, route by route ; but there is reason to believe that his result is too low ; not because of error on his part, but because of incorrect data as to the weight of mails on which his estimate was based. The railroads were on trial at the time and many millions were at stake ; and, at the special weighing in 1899, during the investi- gation leading to the 12^ cent estimate, the figures for the annual mail weight were multiplied by three almost, and the annual increase rose at a bound to eighteen times its previous size. The estimates of the Post Office Department from 1890 down, indicate for the railway mail pay an actual rate of 26 to 36 cents per ton-mile instead of I2j4 cents.^ But even if we (*) Report of Congressional Commission on "Railway Mail Pay," 1900. Part II. p. 253. (^) In 1896 the Postmaster-General returned the weight of mail matter as 512.977.326 lbs. (Report for 1896, p. 7); for the year ending June 30, 1899, it was 664,286,868 lbs. (Report for 1899, p. 6); for 1899-igoo the estimate jump_ed to 1,565,666,508 lbs. (Report for 1900, p. 243) — an increase in one year six times as great as the increase for the three preceding years, 1896 to 1899, and eighteen times the average annual increase. How could this be? The railways say that the estimates of the PostolKce for preceding years all the way back were errone- ous, altogether too small. Perhaps, but it seems strange that the railroads all over the country, without exception, should have accepted pay for a quarter of a cen- tury or more on the basis of a half or a third of the real tonnage of mail they were carrying. Let us look at the facts. In 1899 and 1900 there was a strong agitation for the reduction of the amount paid by the Government to the railroads for carrying the mails. Congress investigated the subject of railway mail pay by means of a special commission whose report fills two big volumes. In aid of the investiga- tion a special weighing of the mails was ordered August 21, 1899, to occupy 35 days, beginning October 3rd. The railways had plenty of notice and they had every motive and every facility for ensuring a very heavy mail during the 35 days of the test. The period chosen is one of the heaviest mailing seasons of the year at any rate, and 35 days was long enough to catch a considerable part of the month- lies twice. One who is familiar with what railroads have done to enlarge the weight of mails at weighing periods when there was no special reason for pad- ding, will fiTxi it hard to believe that they let things take their natural course in 1899, when the whole question of their mail pay and Government graft was at stake. _^ On page 218 of the report for 1900 the Postmaster-General says that some surprising facts" were developed by the special weighing. One was that "the weight of mail carried by the railroads was very much greater than any estimate The Railways ' and the Postal Service. 141 take the Adams estimate, as we did in the opening paragraph of the chapter, the resulting comparisons are sufficiently aston- ishing. According to Prof, Adams' data the receipts of the railways for ordinary express matter average 3 or 4 cents per ton-mile, and for first class freight the railways receive as a rule from lYz to 2 cents per ton-mile. The following table from Prof. Adams' testimony gives some of the facts on which these generalizations are based: heretofore made." Another was that "86 percent of all mail originating in the United States is sent direct to the railroads." And still another surprising fact was that the weight of the bags and other "equipment" was 801,602,902 lbs., or a little more than half the total weight of the mails. This has been used to explain the enormous increase in the weight at the weighing of 1899. But it does not explain it, because the preceding weighing also included the bags and equipment, as the Assistant Postmaster-General who has charge of this division of the work, and the men in various postoffices who did the weighing in previous years, have declared to me, and to others; and it is the well known custom of the Postof&ce to weigh bags and all. The railroads admit this; for example, J. Kruttschnitt, General Manager of the Southern Pacific, says that "the weight of the mail sacks, etc., is included in the calculations of the Postoffice." (Testimony "Railway Mail Pay," Part 11, p. 82.) And the Postoffice authorities at Washington state that the mail weights given on p. 7 of the Postmaster's Report for i8g6, and on p. 6 of the report for iSgg include the weight of bags and equipment. The fact appears to be that while preceding tests may possibly have been somewhat below the truth (altho their substantial agreement year after year, and the acquiescence of the railroads, and the known facts about railroad padding of the mails, all point to the contrary conclusion), the estimates derived from the special test of 1899 are certainly too high. For 1890 Postmaster- General Wanamaker gave the mail weights in detail amounting to 365,368,417 lbs., of which about 310,000,000 lbs, went over the rail- roads at 26 cents per ton-mile. Wanamaker estimated the average mail haul at 448 miles. Prof. Adams says: "Since the recent special weighing by the Postoffice Department we know that the average length of haul for a ton of mail in the United States is 438 miles." (Railway Mail Pay, Part 11, p. 446.) They are close together on that, but far apart on the weight, and the ton-mile rate for 1890, which is stated at 13.54 cents on p. 253, Part II, of the report of the Mail Pay Commission of 1899-1900. The railways received $22,102,000 for carrying the mails in 1890 ($2,260,000 of it for postal cars), so that Wanamaker's weighing must have given only about half the true ton-mileage if the 13.54 cents estimate is correct. For 1896 the Commission gives 12.96 cents per ton-mile of mail. But Post- master-CJeneral Wilson puts the weight of the mails for i8g6 at 512,977,326 lbs., and only about 435,000,000 lbs. of this went over the railways. (See note of letter from Third Assistant Postmaster-General, Arena, vol. 18, p. 636, Nov., 1897.) The railways received $34,840,000 that year on account of the mails ($3,480,000 of it for postal cars). That means about 36 cents per ton-mile, not counting the payment for postal cars. On pagre 7 of his report for i8g6 Postmaster-General Wilson, speaking of the second class matter, says: "The mere cost of transportation of this matter is estimated at 8 cents a lb." The payment to the railways is the same for second class matter as for any other, weight for weight. So that this estimate, indicating 40 cents a ton-mile, agrees substantially with the other data of the report If the equipment was half the total weight (which postoffice people generally question), the amount paid the railroads for transportation was nearly 80 cents per ton-mile for the actual letters and parcels. But of course this would not be a fair way to estimate; we must pay for the bag or the box just as much as for the contents, and in fact mail-pay estimates always do include the bags, etc. For i8g8-9 the data of the Postmaster-General's Report give 27 cents per ton- mile paid the railroads against 12.56 cents estimated by Prof. Adams on the basis of the special weighing. If we include the payments for postal cars the total pay to the railroads, on the Postmaster's figures, averaged 32 cents a ton-mile. The General Superintendent of the railway mail service puts the railroad pay at :^6 cents a ton-mile without the postal cars (p. 671, Part II, Railway Mail Pay). But I think that estimate is nearly as much above the mark as Adams* estimate is below it. 142 The Railways, the Trusts, and the People. Table showing rate received by the railways per ton for the transporta- tion of mail, tirst-class freight and express from and to the points named below via the routes indicated. Per ton of 2,000 pounds. I St Class Tf, Tn Via. Mail. Freight Express. N^w York Buffalo N. Y. C $3i-65 $7.8o $12.50 JMew York «g!^|'° N. Y. C. & Lake Shore 71.39 iS-oo 25-00 Ogden N. Y. C. & L. S., C. B. & Q. and U. P 192-85 75-40 105-00 San Francisco N. Y. C, L. S., C. B. Q., U. P. and S. P 265.63 60.00 135.00 Philadelphia Pa. R. R 6.57 4-40 7-50 Pittsburg Pa. R. R 33-25 7-8o 15-00 Columbus Pa. R. R. and Pa. Co 49-71 11.80 20.00 Indianapolis Pa. R. R. and Pa. Co 65.43 i4-oo 22.50 Washington Pa. R. R 16-20 7-oo 12-50 Atlanta Pa. R. R- and S. Ry 70-20 25.20 40-00 New Orleans Pa. R. R., S. Ry., W. E. of A., L. & N 117.18 23.60 50.00 Boston N. Y. & N. H 17-89 7-6o 10.00 Portland, Me. N. Y., N. H. and B. & M.. . 26.57 8.00 12.50 Chicago Milwaukee C. M. & St. P. R. R- Co. . . . 6.88 5-00 6.00 Minneapolis C. M. & St. P. R. R- Co 36-30 12.00 20.00 New Orleans 111. Central Ry 105.48 42.50 St. Louis C. & A. Ry 30-79 J5-oo Denver C. B. & Q. R. R 75-27 41-00 60.00 Pittsburg Pa. Co 4129 9-oo 17-5" Cincinnati St. Louis C, Cin. C. & St. L- R- R--- 32.20 8.00 15.00 Chicago C, Cin. C. & St. L- R- R--- 23.92 8.00 15.00 Cleveland C, Cin. C. & St. L. R. R--- 25.26 7.40 12.50 Atlanta Savannah Central Ry. of Ga 63.38 12.20 17-50 New Orleans A. & W. P. and L. & N. Rys. 36.98 20.00 27.50 St. Louis L. & N. R. R 68.94 27.00 32.50 In the express column Mr. Adams has not put the full charges to the public by the express companies, but half the hundred pound express rates to represent the railway receipts from the express business. On these estimates the railway receipts from the express between New York and Boston would average 50 cents per hundred, and 38 cents for first class freight, against 89 cents from the mails; New York to Chicago 75 cents freight, $1.25 express and $3.56 mail; New York to Atlanta $1.26 freight, $2 express, and $3.50 mail ; Chicago to Milwaukee 25 cents freight, 30 cents express, 34 cents mail per hundred (this seems fairly reasonable) ; New York to San Francisco $3 freight, $6.75 ex- press, and $13.28 mail (this seems very unreasonable) ; Atlanta to Savannah 61 cents freight, 87 cents express, and $3.17 mail (more unreasonable still). These and other data too numerous for insertion here indi- cate that as a rule railways receive for express 50 to 100 per- cent more than for first class freight, and for mail 100 to 300 percent more than for express.' A specific case will show more clearly the relation between railway receipts from mail and express. The New York Central gets 40 per- (^) J. Kruttschnitt, however, says that the railways are not so well paid for carrying the mails as for carrying the express. (See "Railway Mail Pay," Part II, pp. 81-100.) The Railways and the Postal Service. 143 cent of the gross earnings of the express company operating over its line. The result is the following relation between mail and express for the route from New York to Buffalo, 439 miles. Railway earnings per year for 125 tons of mail daily. . $1,447,840 Railway earnings per year for 125 tons of express daily 436,250 Railway officers claim that the value received from the express should be put somewhat above the 40 percent contract division of earnings because the express performs some "gratuitous" service in the handling of railway packages, etc., but even make full allowance for this and all other claims of the railroads in relation to such comparisons, as Adams does on page 22 of the "Railway Mail Pay" report, the railway value from express would only be $570,312 in the above statement, against $1,447,840 from the mail without counting receipts for postal car rentals or value resulting from the stimulation of traffic due to the mails. The census of 1890 affords the means of a very broad and instructive comparison. From that census we learn that the express companies paid the railways $19,327,000 for carrying 3,292,000,000 pounds of ex- press matter, or 6/10 of a cent a pound. The same year Postmaster- General Wanamaker reported the weight of the mails, paid and free, to be 365,368,417 pounds, or one-ninth of the express weight, and by no means all of this was carried by the railways, yet they received $22,102,000 for less than a tenth of the weight the railways hauled for the express companies for several millions less money. The rate per pound on mail was fully ten times the rate per pound on express. The average haul for express is estimated at 25 to 50 percent less than for mail. So that the ton-mile rate for mail appears to have been at least five times as much as for express, according to the data of the census and the Postmaster-General. Since 1890 the express companies have carefully refrained from allowing the census people or any other public authorities to acquire the facts necessary to a broad and accurate comparison.* The express companies carry magazines and newspapers 500 miles and more at a cent a pound and the railways get less than Yi a cent a pound, or 2 cents a ton-mile. That is not all. Any general express agent will tell you that the company will shade the rate for a large shipper. For example, the Cosmopolitan is carried from New York to Boston, 219 miles, for 18 cents a hundred, or less than 1-5 of a cent a pound." This is at the rate of 1.6 cents per ton-mile for the express company and ^ of a cent a ton-mile for the railways, a rate about 1-16 of the average mail rate and 1-9 of the lowest mail rate on the lines where the volume of mail is greatest. The railways charge the govern- ment about 3 cents a pound for hauling second-class matter, according to Professor Adams, and 8 cents according to Postmaster-General Wil- (*) This calculation from the census data, in connection with the express rates given by Prof. Adams, tends strongly to confirm the reasoning of Note 2, to the effect that the 12 J^ cent mail rate estimate is altogether too low. (') Cosmopolitan, April, 1904. Statement by the editor. 144 Relations of the Railroads to the Public. son, but haul the same stuff for the express companies for less than a tenth of a cent a pound. And if the railways had any serious objection to such rates they would hardly have permitted them to continue all these years, but would have provided against them in their contracts with the express companies. Mr. Finley Acker in his report to the National Board of Trade, Jan- uary, 1900, calls attention to the similarity between the commutation passenger service and the mail service from a railway point of view. Both, he says, are regular and steady forms of business, free from many of the incidental expenses that attach to the general freight and passenger business. Mr. Acker quotes commutation rates on a line operated by the Pennsylvania Company at 4-10 of a cent per mile, this being 80 percent less than the regular single fare. He also quotes a rate from a branch of the Louisville & Nashville of 19-100 cent per mile, or a reduction of 90 percent from the daily excursion rate. The Michigan Central is quoted as giving a 50 percent reduction, and so also is the Lake Shore. Other roads are quoted as giving 65 percent. As these rates are made voluntarily by the railroads and cover a large amount of business, there is no reason to suppose that the commu- tation traffic is not carried at a profit. The average passenger rate is about 2 cents per mile, and President Spencer, of the Southern Rail- way, estimates the average weight of a passenger and his free baggage at 250 pounds, which would give an average ton-mile rate of 16 cents. On this basis, roads making 80 percent discount on commutation rates would receive 3.2 cents a ton-mile, but commutation passengers do not carry so much baggage as ordinary passengers. Perhaps 150 pounds would be a fair average weight for commutation traffic. At this figure the railway making a discount of 80 percent would receive 6 cents per ton-mile, or less than half the charge for carrying the mails. A large number of data relating to charges for excess baggage in various parts of the country indicate an average charge of about 8 cents per ton-mile. As a considerable part, probably 1-3, of this relates to the cost of handling at the station, it is probable that S to 6 cents a ton- mile represents the hauling charge for excess baggage, which again is less than half the charge for hauling the mails. The railways entering New York City have established a rate of 1-6 of a cent a pound on crates of milk within a zone of 330 miles, return- ing the empties free. This gives a minimum rate of one cent per ton- mile (without counting the carriage of the empties), and an average apparently of about 2 cents a ton-mile. These milk trains run at passenger speed. There is no reason to believe that the railways would make a rate on crated milk which they did not believe to be profitable. Yet this rate at the minimum is less than one-twelfth 0/ the mail rate, and on the average less than one-sixth of the mail rate. We have seen that railway mail pay is from 2 to S times higher than the charge for first-class freight. On the lower classes of freight the difference is much greater. Between New York and Chicago the sixth class freight rate is only 1-3 of the rate on first-class goods, and through- The Railways and the Postal Service. 145 out the country the lowest class rate ranges from about % io yi oi the first-class rate. On the average the mail rate appears to be about ten times the average charge for ordinary freight in less than carload lots. Including the carload lots the average freight rate for the United States is 54 of ^ cent per ton-mile, so that the mail rate is more than 16 times the average freight rate. The railways carry oil for the combine in great iron tanks without charge for the weight of the tanks, and in view of this they have been ordered by the Interstate Commission not to charge for the weight of barrels when oil is shipped in that way, but they insist that allowance must be made for the weight of mail bags in estimating the mail rate. In the Import Rate case the railroads were shown to be carrying goods from New Orleans to San Francisco, 2500 miles, for 8-10 of a cent a pound, and for nearly a decade they fought persistently in the courts to maintain the privilege of making such rates, yet the govern- ment has to pay 3 to 8 cents a pound on mail for a haul of 438 miles." That is, the government pays 4 to 10 times as much as the English shipper for less than 1-5 (about 1-6) of the distance, or 20 to 50 times the rate on imported goods from New Orleans to San Francisco. The estimates outlined above are summarized in the following table : THE RAILWAYS RECEIVE For carrying the mails (Adams' estimate), 12.56 cents per ton-mile. For carrying the mails (on the Postoffice estimate), 27 cents per ton-mile. For carrying express generally, 3 to 6 cents per ton-mile. For carrying excess baggage, 5 to 6 cents per ton-mile. For carrying commutation passengers, 6 cents per ton-mile. For carrying dairy freight (as low as) I cent per ton-mile. For carrying ordinary freight in 1. c. 1., 2 cents per ton-mile. For carrying imported goods, N. O. to S. F., .8 of a cent per ton-mile. For carrying average of all freight, .78 of a cent per ton-mile. The mail rate ought not to be higher than the railway rates on ex- press or excess baggage, and should probably be lower than the average excess baggage rate. It is a sure traffic, steady, homogeneous, easily handled, and admits of economy from every point of view. It does not entail any such expenses for storage, loading, and unloading, etc., as pertain to baggage. Station expenses are eliminated. There is practi- cally nothing but the cost of haulage. Wellington, our highest author- ity in railway economics, says that only 70 percent of railway expense is due to transportation. On this basis the railway mail rate would be about 1-3 less than that charged for excess baggage, or about 4 cents per ton-mile instead of 12. A commission appointed by the Canadian Government in 1865 to consider the question of payment to railways for transporting the mail laid down the rule as the basis upon which mail pay should be adjusted, "that mail matter carried in postal cars should be regarded as freight," and added, "that it (mail) should be regarded as the least expensive description of freight, as the company is relieved of any expense beyond the mere cost of movement." (•) See Note 1 above. 146 The Railways, the Trusts, and the People. Other authorities, however, declare that the comparison between mail and freight can only be regarded as a broad suggestion. Mail is car ried in passenger trains, and the cars are lighted and heated; while freight is carried on slower trains without light or heat. It costs three times as much per car-mile for a passenger train as for freight transit. On the other hand, mail requires little or no storage and compara- tively small attention from railway employees. Advertising expenses and a large number of other costs do not pertain to this mail traffic. It does not have to be billed or checked in and out, or loaded and un- loaded by the railways (except in small part), not switched about in yards, nor traced up, nor sought after in competition with other roads, nor paid for under carriers' liability, nor received from thousands of customers who have to be dealt with in respect to freight and involving the collection of innumerable bills, and the keeping of voluminous ac- counts. The agent and station service is practically out of the mail question. The dead weight, however, with a pound of mail is much more than with a pound of freight. President Spencer, of the South- ern Railway, gives the following figures for "dead load" : Freight, 1.5 tons to each ton of paying load. Mail, 15.3 tons to each ton of paying load. Passengers, 31.7 tons to each ton of paying load. Taking the 450,000,000 pounds or 200,000 tons of mail traveling on the railways in 1898, amounting to less than 100,000,000 ton-miles at the average haul of about 440 miles, and multiplying by ten to cover the excess dead weight, we have a little less than 1,000,000,000 ton-miles for the mail reduced to the freight base— a billion ton-miles of mail, postal clerks, bags, equipment, and cars. At the average freight rate this would come to $8,000,000, or less than a quarter of the $34,754,000 paid the railways for hauling the mails in 1898. Reducing the 100,000,000 ton-miles of mail to the passenger base by deducting one-half on account of the extra dead load with passenger traffic, we have 50,000,000 ton- miles, which at 16 cents per ton-mile (the average rate for passenger traffic on President Spencer's estimate of 250 pounds per passenger and his baggage), gives $8,000,000 for the carriage of the mails on the passenger base with allowance for difference of dead load. It is a remarkable fact that when the difference of dead weight is allowed for, the total mail charges at the average freight rate and at the average passenger rate would be exactly the same, and that such charges are less than a quarter of the actual rates paid the railways for carrying the mails. The following table presents the case from the standpoint of prob- able total cost on the various bases we have discussed. 100,000,000 TON-MILi;S OF MAir, At average railway express rates would cost perhaps $5,000,000 At average excess baggage rates would cost perhaps 6,000,000 At average freight rates would cost about 800,000 At average freight rates, making correction for difference of dead load.. 8,000,000 At average passenger rates, making correction for difference of dead load 8,000,000 At actual mail rates (1S98) $34,754,000 The Railways and the Postal Service. 147 In whatever way the subject is regarded, the railway mail pay seems many millions too large. A further count in the indictment against the railways in respect to the mails is that there is good reason to believe they do not really carry the weight of mail for which they are paid. The weighing of the mails occurs only once in four years. The roads have notice before- hand and are strongly tempted to inflate the estimate. To accomplish this they "pad" the mails during the weighing time by sending back and forth large masses of books and papers, getting their friends in Congress to frank large quantities of printed matter, etc., and it does not seem to do much good to expose the fraud and secure a new weighing, for the railways find some new way to obtain the result. For instance, where a flagrant case of "padding" was discovered and exposed and a reweighing ordered, the padding was accomplished a second time by having many thousands of newspapers mailed during the weighing period, to addresses furnished and paid for by the railroad company.®* (8*) '■'During the montli of March, 1896, one enterprising railroad company. Seaboard Air I^ine, whose main line extends from Portsmouth to Atlanta, Ga., at- tempted to take advantage of this opportunity to swell very largely the weight o£ the mail carried over their system during the weighing of the mails by very large shipments of public documents; about 300 sacks of documents franked by a United States Senator (J. B. Gordon) and a member of Congress (A. C. Latimer) were sent to the various station agents of this company in Virginia, North Carolina, South Carolina and Georgia; the sacks weighed 100-125 pounds each; 2, 3, 4 or 5 sacks were sent to an agent; in railroad mail the agents received envelopes containing slips of paper or labels, franked by a United States Senator (J. B. Gordon) and addressed to various persons at various offices in Georgia and South Carolina, a large portion of the addresses being railroad employees or postmasters. "Some agents were furnished by railroad officials with lists of addresses in North Carolina and Virginia. The division superintendents and road masters gave oral instructions to the agents under them as to pasting on labels or writing addresses on books, which were not previously addressed,' but tags on sacks were addressed, 'AH for ' (who is railroad agent at that point). The books were then remailed and again transported over the routes of this company, to be again weighed. A few agents, not understanding their instructions, gave out the books at public distribution before the franked labels were received. Fifteen sacks were delivered at Portsmouth, Va., addressed in bulk to General Superintendent B. V. McBee. That night the books were addressed in the railroad building by his secretary (Williams) and a division superintendnt (Whisnant) and remailed the following morning to various addresses along their routes. A newspaper (Ellenboro, N. C, Enterprise) learning of the transaction, published a short article headed, 'A Mistake,' stating in substance that a United States Senator (J. B. Gor- don) iu mailing documents to his constituents had by mistake addressed them to stations along the Seaboard Air Line Railroad, to be remailed to his constituents, etc. A division superintendent (William Moncure), learning of the article, pro- ceeded to the town (Ellenboro) and induced the editor to cut the item out ©f every copy of the paper on the ground that it would hurt the road. "The 'padding* of the mails by this company was investigated by the Post- office Department, ascertaining from postmasters and station agents as to how many sacks of documents were sent to each station agent, whether they were remailed, to what points, also as to what official furnished the labels and instruc- tions for remailing. And to protect the Government from this attempted padding the Department ordered the weighing to be extended for 30 days additional during April. The railroad company then resorted to a new scheme by contracting with publishers of newspapers for a large number of papers to be sent over their line daily to addresses furnished by the company. At Portsmouth, Va., General Super- intendent McBee arranged with a Portsmouth, Va., paper (Star) to send 6,800 copies daily for ten days and after that 2,400 daily, in bundles of 25 eachto each address, to parties in South Carolina and Georgia on the Seaboard Air Line. At Raleigh, N. C, Williams, private secretary of McBee, arranged to have 6,000 copies first week, 8,000 copies a week afterwards of a weekly paper (North Caro- linian) to be sent weekly in bundles of 45 to each address, to be sent over the Seaboard Air Line to stations in South Carolina, Georgia and a few in North Carolina. At Atlanta, Ga., Van E. Fleming, private secretary of Division Superin- tendent Berkley arranged with Atlanta Journal for 2,000 copies daily, to be sent over the Seaboard Air Line Railroad to Norfolk and Portsmouth, Va., r,ooo ad- dressed as regular subscribers, the other 1,000 as sample copies. Arrangement 148 Relations of the Railroads to the Public. In addition to the regular mail rates the government pays an extra charge for postal cars averaging $6,250 a year per car, altho the cost of construction of cars is but $2,500 to $5,000 each.' For two 30-foot apartments in two combination cars, each carrying one ton of mail, the railways get no car rental ; nothing but the mail weight rates ; but for a 60- foot postal car with an average load of two tons of mail, heated and lighted like the compartments, and with the same fixtures as the afore- said compartments plus a water tank, the roads receive $6,250 a year special car rent in addition to full rates for the weight of mail carried. This means $5,368,000 a year for the rental of cars worth about $4,000,000. A return in a single year of more than the whole capital in- vested is a pretty good rate of profit. The railways have to keep a few cars in reserve, but the number is not sufficient to make any great difference in the results. If the mail service required an unusual amount of car space in proportion to income there might be some justification for a rental charge for mail cars (less than 130%, however), but since the entire mail car space is earning proportionately more than the entire passenger car space in the country, this justification does not exist.' The total pay received by the railways from the Government on account of the mail was $44,499,732 for the year ending was also made with the Atlanta Constitution to send 5,600 of each_ Sunday issue to addresses in Norfolk and Portsmouth, Va., this amount to be divided up and 800 copies sent each day, 400 by morning train and 400 by night train. A copy of Sunday's paper is 34 pages and weighs a little over half a pound to the copy. Norfolk and Portsmouth city directories were furnished the Journal and Consti- tution to print labels for mailing purposes to parties in those cities." (Senate Documents, 54th Congress, 2nd Session, vol. V, p. 27.) (') Postmaster-General Vilas says (p. 56, report 1887): "Taking all the P. O. cars in the U. S., their average value does not probably exceed $3,500." The cost of construction has diminished considerably since then, but the average length of car has increased. In 1902 the New York Central and Hudson River Railway received $248,311 for the rent of 12 cars between New York and Buffalo; the Pennsylvania Railway received $198,044 for 12 cars between Philadelphia and Pittsburg; and the Chesapeake and Ohio received $39,370 for 2 cars between Wash- ington, D. C, and Huntingdon, W. Va. This enormous car rent, covering the whole cost of the cars and 300 to 40a percent profit besides, was in addition to regular mail rates on the mail carried in the cars — rates sufJSciently excessive in themselves, without the extortionate car rent on top of them. The Beef Trust, the Oil Combine, the Pullman Company and other private car lines get mileage from the railroads at rates that pay the cost of the cars in two or three years. To balance the account, the Government, the People's Trust, has to pay mileage to the railroads at rates that pay the cost of the cars in less than a year. Por a 40-foot car the railroads get 3.42 cents per mile of run; for a 45. foot car 4.1 cents mileage; for a 50-foot car, 5.48 cents; and for a 60-foot car 6.8s cents per mile. Even the Beef Trust is satisfied with ^ of a cent a mile and gets enormous unearned increment at that. (') The Postal Committee of the National Board of Trade reported in jgoo that the earnings of the average passenger car were $10,528 a year, against $19,427 as the average earnings of a mail car. And the Outlook, March 4, 1899, says edi- torially that the net returns to the Pullman Company from one of its tourist cars are less than one-third what the Government pays the railroads as rental for a postal car. The Railways and the Postal Service. 149 June 30, 1904, out of a total expenditure of $152,362,116, a part of the mail pay, viz., $5,368,000, was paid as rentals for postal cars in addition to excessive rates for the mail carried in the cars. The express companies do not pay rentals for use of express cars, neither does the Government pay for the use of postal apartments. There is no reason why it should pay rental for postal cars. The whole of this $5,368,000 therefore should be cut out. As the remaining $39,000,000 is paid on the basis of a rate at least two or three times greater than that received by the railways for the carriage of express, it is clear that the total railway mail pay should not exceed $20,000,000, and probably should be less than $14,000,000 a year. If we base our estimate on a comparison with first class freight or dairy freight, or take the Canadian principle and compare the mail with the less expensive freight, we should arrive at a much lower total payment. It is doubtful, however, whether the Canadian suggestion is fair, for the mails are carried on passenger trains and do not come as a rule in carload lots. There can be no doubt, however, that it is fair to compare the mails with the carriage of express and excess baggage on the same trains, and this comparison would indicate, as we have seen, that at most the total railway mail pay should not exceed $20,000,000. The excess of $24,000,000 or more which the Government now pays the railways for carriage of the mails is much more than sufficient to account for the postal deficit." For 1904 the Postmaster-General reported the deficit as $8,812,769. The year before it was $4,586,977. Sometimes it has been less than (*) This deficit is the stumbling block in the way of postal progress in the United States. When a demand is made for a parcels post the deficit is the cudgel with which the demand is combated. ^ When the success and public value of the government telegraphs in other countries is pointed out and the nationalization of the telegraph service in this country advocated, the postal deficit is brought forward by the champions of the system of private telegraph as evidence of the unfitness of the government to conduct a business enterprise. The deficit serves a similar purpose as an obstacle in the minds of many to the adoption of other improvements in our postal department or extensions of the public service. It is even the ground upon which some advocate the surrender of the postal business by the government into the hands of private companies. If fair railway rates were secured, or the abuse of the franking privilege stopped, the deficit would vanish without disturb- ing the second class mail service. Postmaster-General Wanamaker found that 39,000,000 pounds of mail were franked and 30,714,000 pounds sent free in the county of publication — over 69,000,000 pounds of free mail, in a total of 365,368,000 pounds. He estimated that the franked matter sent by Senators and Congressmen and by the Executive departments would have brought the Postoffice $8,500,000 if paid for at regular rates. Bundles of trees 6 feet high and 6 feet round were sent through the mails by the departments, also supplies for the army and tons of documents packed in cases that sometimes required three men to handle them. (Rep., 1890, pp. 29, 31.) I have been told that even carloads of horses and of household goods have been franked through the mails by Government officials. 150 The Railways, the Trusts, and the People. $3,000,000 and at other times more than $10,000,000. But there has been no year in which the excess railway mail pay would not have covered the deficit and left many milUons of surplus besides, surplus enough to have justified the large ex- tension of the free delivery system, the gradual establishment of the postal telegraph, and the introduction of the parcels-post, such as the nations of Europe enjoy. Several attempts have been made to secure a reduction of the railway mail rates. One by Postmaster-General Vilas in 1885, for example, and another by Postmaster-General Wanamaker in 1890. In 1898 the Na- tional Board of Trade passed resolutions stating that the railways were largely overpaid, and calling for a reduction of the mail rates. But up to the present time the influence of the railways in Congress has been sufficient to prevent any action on this line. There has been no change in the law respecting railway mail pay since 1S78. The original intention was to modify the rates from time to time. This was done in 1876, when a reduction of 10 percent in rates was made because of an increase of 46 percent in business ; and again in 1878, when the reduction was S percent because of a 15 percent in- crease of mail. "According to this same ratio of 15 to 61," says Mr. Finley Acker, "another reduction should have been made in 1883, a second reduction in 1887, a third in 1891, a fourth in 1897." And yet for 26 years the law has remained the same." The case was different with the star routes where competition has entered to reduce the mail pay. From 1885 to 1898 the mileage of (") In Senate Report 991, Calendar 1076, the law establishing^ the rate is stated as fellows; "All roads which carry only 200 pounds of mail _ matter or less per day are paid the uniform rate of $42.75 per annum for each mile of road they cover, or $1.17 per ton-mile, if they carry on the average the full 200 pounds a day the whole length of their line. From this minimum weight the rate de- creases as follows: RATE PER TON PER MILE. CENTS. 500 pounds 70.0 1,000 " 46.8 2,000 " 35.1 4,000 '* 21.4 5,000 " 18.7 As the weight increases beyond 200 pounds per day the rate per ton gradually decreases until 5,000 pounds a day average is reached, with a rate of 18.7 centft per ton-mile, then each additional 2,000 pounds is charged for at the uniform rate of 5.8 cents per ton per mile. "The above rates apply to all railroads, regardless of varying conditions, and the matter in excess of 5,000 pounds is paid for at the same rate regardless of whether it be but 2,000 pounds or 300,000 pounds." (Congressional Record, Feb. 20, 1899, pp. 2 and 3.) The result is that on routes where the density or the mail is very great, as between New York and Philadelphia, for example, the volume of business more than makes up for the decrease of rate on the high potencies, so that the overpayment to the road is far greater than on a route that carries only 200 pounds a day and gets $1.17 per ton-mile. On page 236, "Railway Mail Pay," Adams recognizes and affirms this fact that the pay on dense routes is overpayment in spite of the lower scale of rates, and on page 239 he says that all routes are overpaid. The actual mail pay runs from 5.8 cents to $10 per ton-mile — 14 roads get $8 to $10 a ton-mile; 26 roads get $6 to $8; 16 roads $5 to $6; 39 roads, $4 to $5; 62 roads $3 to $4; 136 roads $2 to $3 per ton-mile, _ etc., etc. On more than 2,000 routes the pay is over 60 cents per ton-mile. (Railway Mail Pay, Part II, pp. 270, 458.) The Railways and the Postal Service. 151 Star Routes had increased 14.5 percent; but the cost of hauling the mails on those routes had slightly decreased." During the same period railway mileage had increased 44.4 percent and railway income for haul- ing the mails had increased over 100 percent. It is not difficult to understand this when we remember that while the railway payments are guarded by a powerful railway lobby, the Star Route people have no monopoly and no lobby, and their remuneration is determined by com- petitive bids. The average mail rate per ton-mile has decreased with the growing volume of business, falling, according to Prof. Adams, from 26 cents in 1873 to 20.59 cents in 1880 and 12.56 cents in i8g8, but notwithstand- ing this the ratio of railway mail pay to total expenditures of the Postoffice, and to total receipts of the railways, has risen. In 1878 the railway mail pay was 28 percent of the total Postoffice expenditure; in 1898 it had grown to 35 percent. The ratio to the gross earnings of the railways was 8-10 of i percent in 1873, 1.56 percent in 1881, and 2.74 percent in 1898. It is now somewhat lower — about 2.3 percent last year (1904). In England the ratio is still about what it was with us in 1873, viz., 8-10 of I percent. If the ratio were the same here as in Eng- land, the same as it was here in 1873, we should be paying the railways $14,800,000 a year instead of $44,499,000. Tom Scott, president of the Pennsylvania Railroad, assisted in draw- ing up the new schedule of 1873, establishing the rate of the railway mail pay. The influence of the railway lobby, together with that of a large number of Senators and Congressmen who are identified with transpor- tation interests, has prevented the efforts of large commercial interests and progressive postmaster-generals to secure fair mail rates from being successful. Not satisfied with indirect control, the railways have succeeded in getting their men into the postofiice itself. The railway mail service is a branch of the department controlled by the Second Assistant Postmaster-General. It is not an unusual thing for a railway man to fill this position. Mr. J. Lowrie Bell was a railway official when he entered the office, and resumed a railway position when he resigned from the department. He was succeeded by Mr. C. Neilson, who also came from a railway office and, in turn, returned to one. That such men in the management of their temporary office should feather the future for themselves by carefully guarding railway inter- ests should not give us great surprise. Postmaster-General Payne was for years a railway president. When asked how the United States pos- tal service compared in efficiency with that of foreign countries, he re- plied, "How do I know? I've been Postmaster-General only a year." The principle on which we have been proceeding so far in our estimates of what railway mail pay should be is that of direct compensation on a fair commercial basis. Tho we have (") Since 1898 there has been a decrease in mileage of Star Routes and an increase in cost as reported by the department. The decrease is due to the extension of the Rural Free Delivery system, and the increase in cost is due to the fact that very expensive new service has been established in Alaska, Porto Rico, and Hawaii, and charged up to this account. 152 Relations of the Railroads to the Public. not yet mentioned the fact that the principle of compensation would require of the railway companies an annual payment to the Government of such a sum as would fairly represent the yearly value of their franchises, which would doubtless amount to far more than the t6tal mail pay, there are other principles which there is reason to believe are applicable to the question under consideration. First, the principle of indirect compensa- tion which would require that due consideration be allowed for the value of the mails to the railways as producers of railway business. A railway manager is willing, for example, to carry coal at a very low rate, even at the risk of incurring loss, be- cause he knows that coal is potential in industrial development, and what he loses on the coal traffic becomes for him a gain in the transportation of high-class freight, the product of the mills and factories which the distribution of the coal renders possible. It is thus evident that the railway manager adjusts his charges upon coal with a view to the development of the territory contributing freight to his railway rather than ac- cording to the cost of transporting coal. This line of reasoning is, even in a higher degree, pertinent to the transmission of in- telligence, because the means of diffusing intelligence is an es- sential consideration for growth and development. As the dis- tribution of coal, which is latent manufacturing power, is es- sential to the upbuilding of manufactories, so the diffusion of intelligence is a fundamental condition of all social and indus- trial evolution. The transportation of mail should be classed among those services which minister to the development of the process of production rather than to the satisfaction of wants through the transportation of the products. There is a third principle, that of public utility, which is spe- cially applicable to the matter in hand. Prof. Adams says : "The transmission of the mail involves a public as well as a private interest, and demands for its satisfactory administration a reasonable application of the principle of public utility as well as that of private compensation. The criticism which political science would pass upon all reports relative to this subject submitted to Congress, as well as upon all testimony rendered to this and other commissions, is that they do not adequately recognize the claims of public interest. "If asked why public utility should be accepted as a controlling con- sideration in determining reasonable compensation, a complete answer would rest upon three points, as follows : First, because of the sover- The Railways and the Postal Service. 153 eign character of the postal service itself, which implies that its ad- ministration from beginning to end must be such as to safeguard the enduring and the collective rather than the temporary and the personal interests of the people; second, because of the quasi-public character of the railways, which secures to government the right of regulating the charges for all classes of service according to the principle of public utility; and, third, because of the different results that would follow the application of the political principle on the one hand and of the com- mercial principle on the other." Of all things transported by rail, intelligence is the most essential to social and economic advantage, and therefore is in the highest degree amenable to the consideration of public utility. It is on this principle that free schools, free parks, free fire service, etc., are justified. It is on this principle that second class mail matter is distributed below cost. And the nation which creates and protects railway companies, giving them the use of the sovereign power of eminent domain, and bestowing upon them valuable franchises, has a right to insist upon a reasonable recognition by them of this principle of public utility in relation to the transportation of the mails. In other countries the obligation of the railways in consid- eration of their franchises, etc., and the principle of public utility are fully recognized and acted upon. In France the railways carry the mails free, with the single exception that where the government runs a postal car of its own the railway receives 2 centimes per kilometre, or about i cent per car-mile, which is so near nothing that the railway officials, when I ques- tioned them about the mails, usually made the broad statement that the Government pays nothing for the railway carriage of the mails, and it took a cross-examination to bring out the fact of the 2 centimes special charge in case of Government postal cars. The free carriage of the mails by the railways is a part consideration for their franchises. In Switzerland, where the roads were in private hands, the Minister of the Railways, in answer to my question, said : "On the great railways the Government pays nothing for the mails ; their concessions require them to carry the mails free. On the small lines, if the dividends fall below zV^fo the government pays the fair cost of carrying the mails ; when the road attains 3K% it must carry the mails free." This is the law relating to private railways. 154 The Railways, the Trusts, and the People. In Germany the mails go free on the railways up to on^ car per train. If a second postal car is needed on any train, the government pays 5 pfennigs per axle-kilometre, or 10 pfennigs if the car belongs to the railway. There are usually two axles per car, sometimes three, so that the outside charge is 8 to 12 cents per car-mile, and this only for extra mail cars. The great bulk of the mail goes free, and the excess beyond one car per train pays merely the actual cost of haulage. This law applies to both public and private roads, and was in force long before the government took over the leading railways. In Austria it is provided in the railway concessions that the letter post shall be carried free, and that all mail shall be free up to one car per train. Beyond this the railway receives 18 heller per axle, or 10 to 15 cents per car-mile, which is intended to cover the cost of transportation of the excess beyond one car per train. This is the law in respect to the Nordwest, one of the principal private systems of Austria, and is a fair example of the policy of the country in respect to railway carriage of the mail ; the theory being that the roads should carry the mail as part return for the franchises given them by the state. In Italy again the Minister of Railways told me that the government paid nothing for the railway carriage of the mails. It was so provided in the railway contracts. In Belgium a similar policy prevails, and even in England, where the House of Commons is crowded with railway direc- tors and others more or less under railway influence — even in England with the postoffice carrying a large part of the parcels that go by express in this country — even in England the postal payment to the railways is only about one-ninth of the total expenditure, instead of one-quarter to one-third as in the United States. Thus we see that in countries where the railways are owned by the government or where the government control over pri- vate railways is strong, the mails are carried at cost or below cost, while in the United States, where the Government does not exert any real control over the railways, but they rather exert a real control over the Government, the postoffice pays the rail- ways several times the fair price for the carriage of the mails. Where public interest dominates private interest, low rates The Railways and the Postal Service. 155 are made for the transportation of the mails. But in the United States, where the Government has been most lavish in gifts of land, money, and privileges to the railways, where a large part of the privately owned capitalization of the railways has come directly out of the public treasury and the public domain, the railways charge for hauling the mails, not cost, but a fancy price that cripples and curtails the postal service. If the rela- tion of the Government to the railways were simply that of a voluminous private shipper, such as one of the great express companies, the railroads would openly, honestly and gladly give it rates not exceeding half and probably not over one-third of the rates that are being paid, thereby saving the Postoffice twenty or twenty-five millions a year. As the creator of the railways, the grantor of. over half their values, and the repre- sentative, in its postal department, of one of the highest inter- ests of civilization, the Government is entitled to much better terms than any mere commercial shipper, and yet, instead of better terms, it pays for higher charges than large private shippers. Public interest demands that every reasonable facility be given for cheap and rapid postal service. A tax on the mails is a tax on knowledge and social intercourse. Civilization bears a clear relation to the use of the post." The postal business is at once the cause and sequence of civilization, and a vital element in further development. So far as the public interest is domi- nant, postal rates are made as low as possible and traffic in- creased as much as possible ; but in those respects in which pri- vate interests are in control, the whole tendency is to keep up the rates and so restrict the business. The weight and influence of our whole vast system of railways is thus opposed to the development of our postal service. The railroads in this matter stand squarely across the path of our civilization and higher social progress. The postal service is hedged in by the railways, express com- panies, banks, and private telegraphs. Uncle Sam's messages may go on foot, steamboats, railway cars, and pneumatic tubes, (1=) See "Civilization Tables" in The Story of New Zealand, pp. 72i;722, comparing the data for i8 leading countries. The contrast between 3 pieces handled by the Turkish Post OiEce per year for each family and 560 pieces per family handled by the Swiss Post Office, is tremendous. See also The Arena, vol. 17, p. 424, where I have again tabulated the facts relating to Civilization and the Mail. 156 Relations of the Railroads to the Public. but he must not send the English language on a wire, for that is reserved to the Western Union et al. He may use foot- power, horsepower, steampower, and windpower, but electricity, the best and swiftest of all, is sacred to private monopoly. We cannot have postal savings banks because the private banks object. And we cannot have a postal express, or parcels-post, nor reasonable rates for the transportation of the mails, be- cause the railways and express companies have more influence in Congress than the people have. Chapter X. THE EXPRESS. Our express companies, like the private car lines, perform a part of the business and transportation that can bear specially high rates. Like the chief car lines also, they have exclusive contracts with the railways, and they are free from Govern- mental supervision. They do not come within the Interstate Commerce Law. They do not even have to furnish the Gov- ernment with statistics of their traffic. As a matter of fact, the express companies do not keep any traffic statistics, and the testimony of their officers before investigating committees is always vague and of little value. The railway data collected by the Interstate Commission indicate that the railways receive from the express companies something over $38,000,000 a year, which represents over 40 to 50% of the gross earnings of the express; but this is the extent of the present information ob- tained by the national Government. Some general information was published in the census of 1890, but the data attracted so much attention that the express was carefully excluded from the specifications of the next census, and the census of 1900 said nothing about it. We know nothing as to the amount of money invested in the business, nor the tonnage hauled, nor the ex- penses other than to the railways, nor many other important matters. The express companies are not in business to give statistics : they are seeking dividends, not facts. Twenty-five express companies are doing business in the United States. Three railway systems, the Great Northern, The Express. 157 Northern Pacific, and Union Pacific have expresses o£ their own, tho the latter is now practically amalgamated with the Wells-Fargo. The leading private companies are the Adams, American, National, Southern, United States, and Wells-Fargo. The others are all small companies; and as the National is controlled by the American, and the Southern by the Adams, there are really but four great independent express companies in the country. The consolidation of express companies has gone far in the elimination of small companies and in increasing the lists of offices of the great companies until some of them are continental in their scope. It is possible that consolidation may not be carried much further except as an incident in the coalition of railway systems. There are some advantages in the present state of apparent competition. It has a quieting effect upon public opinion, aids in the maintenance of high rates, and pro- duces a convenient confusion as to the responsibility for dam- ges and poor service. Yet there is no real competition in re- spect to rates. Even between the great presumably rival express companies there is remarkable felicity. They cash each other's orders, handle each other's goods, and promulgate each other's tariffs in the most fraternal fashion. This felicity seems to be well- grounded and secure. The interlocking of interests insures a reasonable degree of domestic tranquillity. For example, President Fargo, of the American, and President Weir, of the Adams, are both directors of the United States Express Co., of which Senator Thomas C. Piatt is president; and an amalgamation of the Wells-Fargo and the Pacific Express Companies has been practically effected through Mr. tlarriman. The intimate connection between the railway interests and the express companies is easily seen. President Weir, of the Adams, is a director of two railroads ; President Under- wood, of the Erie, is a member of the Wells-Fargo board; Chairman Plant, of the Southern, was a director of the Atlantic Coast Line; Charles M. Pratt, of the Boston & Maine, is a director of the Ameri- can; President Fargo, Of the American, is a director of the Chicago and Northwestern; Vice-President Ledyard, of the National, is a direc- tor of both the Boston and Maine and the Maine Central; and the Morgan railway interests have personal representation on the boards of the Adams and the United States companies. As examples of the interlocking stock ownership, a writer in the "Atlantic" notes that "in 1902 the New York Central purchased $3,000,000 of the capital stock of 158 The Railways, the Trusts, and the People. the American Express Company, while the Union Pacific owns $2,400,- 000 of the $6,000,000 capital stock of the Pacific Express Company, and the Southern Pacific possesses $1,530,000 of the Wells-Fargo stock. On May I, 1900, the American Express Company held 29,000 shares of Boston and Maine stock, a tenth of the total capital, and among the stocks pledged as collateral for its debenture issue by the Adams are a large number of railway shares, including Pennsylvania, New York, New Haven and Hartford, Chicago, Milwaukee and St. Paul, Boston and Albany, the Air Line, the Northwestern."' Several different sorts of agreement have been used in de- termining the relations of the railways and express : payment by weight, payment by space, payment by percentage of the gross receipts; the latter plan is now almost universal, 40 to 50 percent of the gross receipts of the express companies being paid to the railways for transportation. The Penn- sylvania gets 47 percent while the New York Central and most of the other principal railways get 40 percent. The term of agreement was formerly 10 to 30 years. Long terms are now the usual practice. The president of one of the four giant express companies told me that the railways manifested a tendency to squeeze the profits out of the express business. For example, when the Wells-Fargo contract with the Southern Pacific expired a few years ago the railway made the express company pay $1,700,- 000 bonus for the renewal of the agreement. I asked the president if the express companies could not unite to prevent the railways from extorting more than a fair return for the transportation service. He replied : "You must remember that there are railroad expresses, and that the railroads can establish their own expresses whenever they choose." "Is it not possible for you to keep the amount of your profits a secret?" "The railroads know pretty well by their own experiments what the profits of the business are." "Do not railroad managers own sufficient stock in the express to make them friendly to it?" "No. The ownership of express stock by railroad officers is insignifi- cant." Whatever may be the situation now, it would seem that rail- way holdings of express stocks have not always been small. C. F. Adams says : "OfiScers of the railroad corporations sud- denly found themselves considerable holders of express stocks (}') Atlantic Monthly, July, 1905, page 5. The Express. 159 or openly received bribes. The wealth of the express com- panies was so great and their influence ramified so far that the management of railroads in a great degree passed under their control.'" In their irelations with the government, the public, and the law, express companies show the same disposition as the rail- ways. They charge high rates, discriminate between shippers, control legislation as far as possible in their interest, block all efforts at postal reform which would interfere with their profits, especially the establishment of a parcels-post. Great Britain has a parcels-post which carries parcels up to 11 pounds, at the rate of i pound for 6 cents, i pound to 2 pounds for 8 cents, and so on in 2-cent steps until 10 and 11 pounds are carried for 24 cents. The sender may enclose a letter intended for the same person as the parcel, and the parcels are included in the free delivery. In this country no package weighing more than 4 pounds can be mailed, and if we could mail 11 pounds of merchandise the cost at our rates would be $1.76 instead of 24 cents as in Great Britain. In Germany the parcels-post carries packages up to no pounds. For a parcel weighing not more than 11 pounds the postage within a zone of 46 miles is 25 pfennigs (a little less than 6 cents), and without limit as to distance, between any two points in the sister empires of Ger- many and Austria, the charge is 12 cents — one-half the English charge, and one-fifteenth of the rate in the United States. A parcel weighing no pounds can be sent through the mails a distance of 46 miles for 60 cents, or about half a cent a pound, and for a distance of 92 miles the charge is 1.15 cents, about i cent a pound, against our merchan- dise rate of 16 cejjts a pound. It is a common thing in Germany for schoolboys to send their linen home by mail for the family wash, and a basket of peaches or potatoes may be sent by mail as well as a pack- age of books. The German post carries a good-sized package or box of merchandise anywhere in the two empires for about a cent a pound, insures it, guarantees its safe delivery, collects the price- of the pur- chase, and remits it to the shipper. [Think what a service like this would mean to our mail-order merchants and manufacturers.] For an inferior service our corporation-repressed postoffice compels us to pay about IS times as much per pound, or a rate 1400 percent higher, or else pay the express companies whatever they see fit to charge.^ (') Chapters of Erie, 391. 0) In the course of a very interesting series of articles in the "Cosmopolitan" for February, March, and April, 1904 (printed in small type on the pages preceding the frontispiece) the statement is made that a llo-pound package can be sent through the mails in Germany and Austria for 30 cents without regard to distance. As the statement is made on high authority and has been widely quoted m the press, the reader may think we have overlooked a very important fact in this con- nection. But the truth is that the statement is incorrect. The rates in Germany are very low, and a iio-pound package can be sent through the mails, but not for 30 cents regardless of distance. The true rates are those given in the German Postbuch, which have been used as the basis of our text. The reader may find the i6o Relations of the Railroads to the Public. China and the United States are the only countries of im- portance that do not possess a parcels-post. In Great Britain, France Germany, Belgium, Holland, Denmark, Switzerland, Austro-Hungary, Italy, Spain, Russia, Japan, the Dutch East Indies, the South American republics and in the great stretches of India and Australasia, the various governments under their postal departments perform a large part of what we call the ex- press service for the people.* Even Turkey and Siam have their parcels-post. Outside the United States the civilized world is practically a unit on the parcels-post, and in many countries the whole express business is in the hands of the government. We cannot have a parcels-post in this country because the express companies and their railroad allies have more influence in Congress than the people have. Vigorous efforts have been made, especially under Postmaster-General Wanamaker's lead, but railroad senators and corporation lobbyists have prevented the establishment of a parcels-post, or even the making of or- dinary parcel rates on merchandise anything like as low as they are in other countries. Our letter post is as reasonable and German rates in the Daheim-Kalender, 1906, p. 243, which may be had from E. Steiger & Co., 25 Park Place, New York City. (*) The following table shows the rates paid by people in a few represen- tative countries for the transportation of packages by parcels-post : PARCELS POST TARIFFS. WEIGHT. I lb. COUNTRY. Great Britain i Great Britain 2 Great Britain 11 France 6 France 11 France 22 Germany 11 Germany 11 Germany no Germany-Austria 11 Austria I i-lo Austria I i-io Austria 11 Austria 11 Hungary 11 Hungary 11 Italy II Italy 6% New Zealand i New Zealand 11 Victoria I Victoria 11 South Australia i South Australia 11 New South Wales i New South Wales 2 New South Wales 11 lbs. ENGLISH Mites. no limit 46 no limit 46 no limit 46 no limit 46 no limit 46 . no limit APPROXIMATE RATES. 6 cent» 8 24 12 16 25 6 12 60 6 IS 7 IS lb. Ih. lbs. Ih. lbs. lb. lbs. (6c. for each ad. pound) " no limit The Express. i6i efficient as that of other leading countries," but our merchan- dize post is far behind the times. Postmaster-General John Wanamaker in reply to a question about the parcels-post said: "It is true that parcels could be carried at about one-twelfth their present cost by the Post- office Department, but you do not seem to be aware that there are four insuperable obstacles to the carrying of parcels by the United States Postoffice Department. The first of these is the Adams Express Company ; the second is the American Express Company; the third, the Wells-Fargo Express Company, and fourth, the United States Express Company." Directly and indirectly, through political influence and the use of the press, express companies are able to exert much control over the postoffice. The department has recently announced a curtailment of privileges under the foreign parcels-post, and now comes the word that one of the most important nations that has long clamored for a satis- factory parcels-post convention with this government has at last ar- ranged for the service with the American Express Company.' Year after year the Interstate Commerce Commission asks in vain that the express companies be compelled to render reports to it. The companies will not even make this small concession to the public. We must pay their charges, and accept whatever service it pleases them to render, and may not even know their profits nor any of the inside facts relating to their business. They alone may decide whether packages shall be collected and delivered free at any particular station, what constitutes their obligations to the public, and all ques- tions regarding the service. They do not even have to claim that their rates are reasonable. In its first report the Interstate Commerce Commission said "the com- plaint of excessive charges upon express traffic has been common," but the complaint continues to be unavailing. On the authority of "the senior partner of one of the largest international forwarding agencies in the States," Acworth says that "the express rates may be taken to be on the average something more than double the highest rates of the ordinary freight tariff." In the report just quoted the Interstate Com- mission said : "No clear line of distinction exists between the express business and some branches of what is exclusively railroad service; and the express business may easily be enlarged at the expense of the other. C*) See Arena, vol. i6, p. 650. (") Paris, Oct. 13, 1904. It is ofEcially announced that the arrangement for a parcels-post between the United States and France, including Corsica and Algeria, will come into force on Nov. i, under contracts with the Compagnie Transatlmque and the American Express Company. — (Press Dispatch in the Boston Transcript) J 62 The Railways, the Trusts, and the People. Those roads which now do their express business through a nominal corporation might hand over to this shadow of their corporate existence the dressed meat or live stock business, or the fruit transportation, or any other business in respect to which speed was specially important; and they might continue this process of paring off their proper func- tions as carriers until they should be little more than the owners of the lines of road over which other organizations should be the carriers of freight, and on terms by themselves arbitrarily determined. Now, it is evident that a system which encourages the management of a railway to give inferior accommodation to traffic in perishable commodities, in order to compel the consignor, as in instances quoted by the Com- mission, to pay the express rates, which are four times as high, is not a system conceived in the interest of the public." Train loads of strawberries are shipped every day in the sea- son from Louisiana points to Chicago at an expense of about $400 per car to the shipper. Out of this, $180 goes to the railroads, and $220 to the express companies for performing less than 3 percent of the work.' A 10 pound package is carried by express from Boston to New York for 40 cents, and to have the same package delivered in some Connecticut village, nearer the point of shipment, may cost more; while the same service in Germany would cost less than 12 cents, and in Great Britain but 24 cents. Prom Mt. Holly, N. J., to Toledo, O., a I2lb. package costs by express 95 cents; to Bangor, Me., $1.25; and to Charlotte, N. C, 95 cents. The same service in Great Britian would cost 24 cents and in the German states 12 cents. The parcels-post of England as compared with Germany is at a disadvantage in having to deal with the privately owned railways. The railways are given 55% of the gross receipts from the railway parcels business for merely carrying the par- cels, while the postal department does all the work of collecting, sorting, delivery, etc., for the 45%. Mr. Hole, in his book "National Railways," says that the department actually finds in some instances that carriage of its parcels-post by horse is cheaper than by the railway. Our express companies charge 25 cents for hauling 10 lbs 100 miles, perhaps, and the same for hauling J^ lb 10 miles. At the same time they compete successfully with the postoffice for the hauling of periodical publications, making a lower rate than the second class postal rate of i cent a pound and taking a (') Senate Committee, 1905, p. 3459. The Express. 163 large proportion of t&e short haul or profitable part of this busi- ness. It is estimated that nearly three-fourths of all the periodi- cals sent by publishers to the 15,000 distributing agencies in the country are sent by express and fast freight, and that the daily papers use the mail for not more than 10 percent of their circulation. Between New York and Boston magazines are carried by express at the rate of 1-5 of a cent a pound, and 9-10 of a cent from New York to St. L,ouis.' The bulk of this business is done. Professor Adams says, within distances not exceeding 150 to 200 miles.' The president of Wells-Fargo says that the mass of the newspaper and magazine business is not carried more than 125 to 150 miles. In other words the express companies take the cream of the periodical trade and leave the expensive part of it to the postoffice, which gets the long hauls and sorts and delivers the pieces separately, while the express companies carry the stuff in masses. That a flat rate of one cent a pound for parcels-post service through- out the United States is a practical proposition has been ably maintained by some writers.^" It is no purpose of this chapter either to defend or refute that theory. Our private express companies do a cent-a-pound bus- iness in competition with the government within a zone of something like SOO miles, and on short hauls do the work at much lower rates. The profits at the cent-a-pound rate appear to be excellent. The Second Assistant Postmaster-General in his report for 1897 tells of one daily train which was run from New York (2.10 A. M.) to Washington (7.40 A. M.) for the express companies, and upon which they handled prac- tically nothing but newspapers and periodicals. He says that the ex- press companies were making from $15,000 to $20,000 a year on this one train. On October 10, 1897, he took possession of this train in behalf of the Department". "This train was successfully run as a mail train, October 10, 1S97. The newspaper mail alone taken on at New York was 75,442 pounds, and at Philadelphia 11,368 pounds, in all 86,810 pounds, yielding a daily revenue to the government at i cent a pound of $868.10. At this rate ^the net profit to the Government from this train would be $15,000 to $20,000 annually on the newspapers alone." " The rates made by trans- atlantic express companies would also indicate the reasonableness of the proposed rate in this country." Under the zone system, now in effect in (®) Cosmopolitan, April, 1904. Statement by Editor John Brisben Walker. (') "Railway Mail Pay," 1900, part 2, page 45. 0") "A General Freight and Passenger Post," by Mr. James Lewis Cowlei (Putnam's), is one of the ablest advocates of this proposition. (^) House Document 4, 55th Congress, 2nd session, volume 11, p. 184. 0^) "Note also that Messrs. Davies, Turner & Co., of New York, advertise to carry express matter, domicile to domicile. New York to London, for^ 2^ cents a pound up to 100 pounds, and for each additional 100 pounds the rate is but i cent a pound; and Messrs. C. B. Richards & Co. carry packages weight 100 pounds, 164 Relations of the Railroads to the Public. the German states, a large amount of business is done at J4 a cent to I cent a pound, and tho our wages are higher, our labor is so much more efficient that if our government had reasonable transportation rates on the railways it might be possible to establish a cent-a-pound parcels-post at least within a hundred miles for large packages, and without regard to distance for parcels up to 10 or 11 pounds. It is a strange fact that citizens of foriegn countries can send packages to any town in the United States more cheaply than we can; and that we can send packages to points in Europe and Australasia at lower rates than we can send them to points in the same state in which we live. We can send a parcel from Boston, Chicago, San Francisco or any other point in this country to Berlin or any other point in Germany for 12 cents a pound, while it costs 16 cents a pound to send the same package from Boston to Worcester, New York to Albany, or Philadel- phia to Pittsburg. Vice versa, an inhabitant of Germany can send a package to any place in the United States at 12 cents a pound, while if he resided in this country he would have to pay 16 cents. The rate on the international parcels-post is much lower than the charges made by the express companies. From Boston to New Zealand the charge for a 3-pound package is 36 cents by parcels-post and $1.05 by express; for a 7-pound package the rate is 84 cents by post and $1.60 by express ; and for II pounds the charge is $1.30 by postal express and $2.25 by corpora- tion express. New Zealand sends a lo-pound package 12,000 miles to London by parcels-post for 75 cents. From Boston to London, 3000 miles, our express companies charge $1 for such a package. A New Zealander can send a 3^pound package by postal express to London for 25 cents. From Boston to London the company rate is 50 cents. We have international parcels-post conventions with 31 countries. The conventions with the Bahamas, Barbadoes, Bolivia, Chili, Columbia, Costa Rica, Danish West Indies, Guatemala, Honduras, Jamaica, New Foundland, New Zealand, Nicaragua, Salvador, Tobago, Caicos Islands, Venezuela, Windward Islands, make 11 pounds the limit, so that an 11- pound package can be sent by mail from the United States to those countries or from any one of those countries to any place in the United States. But in the case of the more important countries, Germany, Bel- gium', Norway, Japan, and Great Britain the limit is 4 pounds 6 ounces as to weight, and $50 as to value. The maximum weight at first was II pounds in all cases; but a year ago the Postoffice Department reduced the limit in respect to these important countries with which the inter- change of traffic is the largest, so that in the very cases where we most need the full parcels-post facilities they are denied us. There was no parcels-post convention at all with Great Britain until April, 1905. Be- domicile to domicile, from New York to any place in Great Britain or Ireland for 3 3-5 cents a pound, and for each additional 100 pounds the rate is but i i-io cents a pound." Senator Pettigrew, Senate Document No. 217, 55th Congress, ar.d session. The Bxpress. 165 fore that every package sent through the mails to Great Britain had to pay letter postage, as is still the case with packages sent to any coun- tries with which we have no parcels-post convention; that is, a package of merchandise to England paid 10 cents an ounce, so that it was cheaper to send by express if the weight were more than a few ounces. Now we pay 12 cents a pound. In addition to the pound rate 5 cents is charged for delivery of an international postal parcel in Great Britain, Germany, Belgium, Norway, Japan, or United States. Like the railways, the express companies practice favoritism and discrimination. They are under no obligation even to pub- lish their tariffs. They may, and do, charge dififerent prices for the same services to different people and to diiferent places. They have several schedules : ordinary, double rate, triple rate, etc. according to mode of shipment, magazine rate, etc., and special rates. Express agents tell me that special rates to in- dividual shippers are made constantly, and in many cases. Some shippers do not have to pay any rates at all. A United States Senator of my acquaintance can frank any quantity of express — 3. whole carload if he pleases. And Senators are not the only Government officials who get express favors. One of the witnesses before the Senate Committee in 1905 testified that on more than one occasion an express company had franked a carload of horses, the property of an Interstate Commerce Commissioner, from the city of Washington to the state of Minnesota, and to other points and back, under the name of another party. And as an example of discrimination by false weight he said that a carload of 28 horses had been shipped by express at a minimum carload weight of 10,000 pounds. Free transportation can be given by the express companies, practically without cost to themselves, because they pay the railroads by a percentage of receipts. Rebates and discrimina- tions are easy for the same reason. When the express gives a rebate or makes a special rate it is practically giving away ralway transportation without having to think of the cost of such transportation — a function that falls on the railroads, not on the express, under the percentage arrangement. A witness in the recent railway investigation says : "A friend of mine went to a house in Chicago that had 4 carloads ready to ship to New York. The rate was $2.25 a hundred. The railroads were relig- ious. They would not shade the rates, and it was a good line and ex- pected to get the business on the merits of the service. Two days after- 1 66 The Railways, the Trusts, and the People. ward he went up there and the express company had hauled down the cars and they were shipped to New York and dehvered to the store at the other end, including 'the cartage, which they own, for $1.50, and the railroad companies, I presume, got 45 percent of the $1.50 and were satisfied." " Where the railway agents are also agents of the express there is a special motive to encourage shipments by express instead of freight, for the agent's railway salary is fixed, while his express pay is by commis- sion. Such an agent will resort to various schemes to divert traffic to the express. For example, where acting as express agent, he will bill barrels weighing 180 pounds at 75 pounds which as railroad agent he bills at the proper weight of 180 pounds, so that the express matter, while costing the railroad companies more than the service on freight trains, is often carried by the railways for less money than is charged for common freight. Rebates are paid by express companies, and fraud and misrepresentation are known and encouraged by agents of the rail- roads that are defrauded, when acting at the same time as express agents." As to places, our express companies, aiming at dividends, naturally refuse to give any service at all to a place where they see no prospect of making a profit. And between places where service is granted great discriminations result from the methods of making rates employed in the express business. For instance between Boston and Providence and some other routes on which there is a dense traffic the tariff begins at IS cents, while on most routes it begins at 25 cents. In his statement before the Industrial Commission, Mr. John P. Coffin, of Florida, said that the only express company that reaches that region prefers high prices and small business to reasonable prices and a large business, and that consequently a great restriction is forced upon some industries. Pish from Jacksonville to Louisville, Nashville, Cincinnati, or St. Louis must first go to New York, quadrupling the distance, in order to get the lowest rate. It is 150 miles farther from New York to St. Louis than it is from Jacksonville to St. Louis, yet Jacksonville fish are taxed $5 per barrel by express to St. Louis, but are shipped by vessel to New York and thence by express to St. Louis for a through rate of $3.30 per barrel. The appended table of express rates from' Jacksonville and from New York is given." (^^) Senate Committee, 1905, 3470. (") Testimony of Mr. E. G. Davies before Senate Committee on Interstate Coitimerce, 1905, page 3460. (^) Industrial Commission, VII, 783. MILES. EATgS. Jacksonville to Chicago 1,100 $7.00 New York to Chicago 950 1.50 Jacksonville to St. Louis 950 5.00 New York to St. Louis 1,100 2.00 Jacksonville to Memphis 700 3.75 New York to Memphis 1,100 3.25 Jacksonville to Chattanooga 500 2.50 New York to Chattanooga 950 2.50 Jacksonville to Nashville 575 3.50 New York to Nashville 900 2.50 Jacksonville to Louisville 700 4.50 New York to Louisville 750 1.75 The Express. 167 Altho in the making of contracts between the railways and the express companies the ralways are supposed to be in position to dictate, and the express companies would have but an empty name for their assets except for these contracts, the profits of the express appear to be very large. Dividends and surpluses and the high value of stocks, on a large part of which no value was ever paid in, testify to the prosperity of the business. At the time of this writing the stocks of the four big companies are quoted as follows : Adams Express Company 250. American Express Company 214. United States Express Company 122. Wells-Fargo Express Company 246. The Adams Express Company is capitalized at $12,000,000 and pays a "regular" dividend of 4 percent and an "extra" dividend (regularly) of 4 percent. A few years ago (1898) it paid out to its members a 100 percent extra dividend of $12,000,000 in 4 percent debentures in order to dispose of part of its accumulated surplus. The American Express Company has $18,000,000 of capital upon which it pays ordinarily 8 per- cent dividends. The United States Express Company pays 4 percent dividends on $10,000,000 capital. The Wells-Pargo on a capital stock of $8,000,000 pays a regular dividend of 6 percent and an extra dividend of 2 percent. These companies have surpluses running into the millions. Some of their officers are paid higher salaries than the President of the United States, and how much greater their earnings are than these excessive dividends on this excessive capitalization would indicate we have no means of knowing. Notwithstanding the high rates which we pay to our private express companies, the service they render is poor. At a vast number of the express offices in the country there is no col- lection or delivery service whatever. Over thousands of miles of route where the United States Government sends a wagon daily with the mail there is no express service. In hundreds of villages and small towns where the mail is delivered from door to door there is no express delivery. In fact the actual service of collecting and delivering express matter is limited to a very small portion of the population. Even in cities where i68 Relations of the Railroads to the Public. collections are made, the sending of a package by express, ex- cept by the few people who "subscribe" to telephone service, involves either a trip to the express office or the writing of a letter asking the express agent to call. So poor a service and so short sighted a public policy has not been suffered by the American people entirely without protest. A very considerable number of magazine articles and books have contributed their weight to the popular view that the ex- press business is a public function that should be operated under our Postoffice Department ; a Postal Progress League including many prominent business men has been formed to push for a parcels-post; a preponderance of the expert and professional opinion that has found voice advocates the measure, and un- questionably an overwhelming majority of the citizens of the country, if permitted to vote upon the question by itself, would favor the establishment of a national, cent-a-pound parcels-post. If the Government should take over the express business and establish a system of rates upon the public-service basis, the great mass of the delivery business of the merchants all over the country in local trade as well as in mail-order business would be turned over to the Postoffice Department. With near- ly 75.000 offices and postmasters and a great organization fully competent to handle this business, the additional cost of it to the Department need be but a fraction of what it must neces- sarily be to any private company.^" Mr. Walker estimates that a parcels-poit would be worth over $250,000,000 a year to the people of the United Slates through the saving of the wastes of the present system and the development of business that would follow low rates and better facilities." Instead of having to pay rates to two or more com- panies on many transits, and having no express service at all (10) "The Post-Office Department has already in operation in the United States 74.160 postofBces, thousands of highly paid officials, lawyers, detectives, and other adjuncts of such an organization. These are already housed, provided for, and under salary. It follows that if the express companies' offices should be dosed up and transferred to the Postoffice Department, at least two-thirds of the expense which the five great express companies and the ten thousand local express companies are now put to for highly paid officials, for rentals, for employees, and items out- side of railway or wagon transportation, would be saved." John Brisben Walker, Cosmopolitan, April, 1904. (") Mr. Walker also thinks that the introduction of a parcels-post would be of great advantage to the railroads. He says that the railways would be benefited by a steadier traffic, an increase in the higher priced class of traffic, the large increase in traffic due to better, cheaper, speedier and more direct, and in every way more convenient facilities, and that additional prosperity which a saving of anywhere from two hundred and fifty to six hundred millions of dollars per annum would mean to the country at large. ^Cosmopolitan, March, 1904.) The Express. 169 in many cases, we should have the express as widely distributed as the Postoffices, with a single administration, low uniform rates, no favoritism, and no political express-railway lobbies working to keep the postal rates up in a balloon. It certainly seems a shame that the profit scheming of a few stockholders should prevent our people from having as good a service as our neighbors overseas. The average freight rates in Germany are double those of the United States, but a suburb- anite of Berlin can send into the city for an 1 1 lb package and have it delivered at his door for six cents, while the Philadel- phian must pay 25 cents for the same service. The German merchant can deliver an 1 1 lb package to a customer a thousand miles away for 12 cents, but the New York merchant must pay $1.00 or $2.00 — whichever the traffic will bear. The freight rate in Great Britian is three times our rate, but her people cand send parcels through the mails at J/2 to 1/7 of our rates. The English Postoffice Department will take a package from any home in Great Britian through lyondon to Egypt, through the Suez Canal to India, from India to Hong Kong, from Hong Kong to Shanghai and then deliver it at the home of the con- signee for 12 cents a pound, while the Adams Express Com- pany charges the citizens of Boston 85 cents a pound to the same destination, and the United States Postoffice Department charges 16 cents for taking a pound even the shortest distance. If we of the United States wish to send a four-pound Christ- mas present by mail to any point in this country the postage will cost us 64 cents; but the same present could have been posted in Glasgow, transported across the Atlantic and delivered at the remotest station in the State of Washingon for one- fourth less than the local postage. Our friends in New Zealand can send us packages at three-quarters of the rate for which we can send them to each other. The fundamental questions that emerge from all these facts are: 1st. Is the postal service of the United States to be managed in accordance with the interests of the people, or in accordance with the interests of the express companies? 2nd. How are the people to get enough influence in Congress to make the public interest the decisive element in postal legis- lation ? 170 The Railways, the Trusts, and the People. Chapter XI. THE CHAOS OF RATES. If the railways fulfilled the requirements of the interstate commerce law, President Stickney estimates that there would be printed tariffs in Washington exhibiting 4,500,000,000 rates in the classifications alone,^ without including the enormous mass of commodity rates or the special rates to favored ship- pers, which last are in many cases unfit for publication. It would be a waste of paper and ink to print five or six trillions of rates, and if it were done no one but an expert could discover the actual rate between any two points in the United States on different lines of road. Even the experts are often puzzled, and the correspondence relating to disputes about the correctness of charges piles up into volumes every year. And the rates are constantly changing. A count some time ago in the office of the Interstate Commerce Commission indi- cated an average of 500 tariff changes per day. At the lowest estimate 300 rate schedules are received daily by the Interstate Commerce Commission; many of these schedules contain hun- dreds of separate rates and not a few of them thousands. Here is a table of the rate schedules filed by eleven railroads in 1904: Number. Pennsylvania Railroad 4,123 New York Central and Hudson River Railroad 1,561 Illinois Central Railroad 6,344 Chicago and Northwestern Railway 2,178 Chicago, Rock Island and Pacific Railway 3,375 Chicago, Milwaukee and St. Paul Railway 2,591 Baltimore and Ohio Railroad 3,925 Louisville and Nashville Railroad 3,330 Northern Pacific Railroad 774 Union Pacific Railway 789 Wabash Railroad i,i3S Total (eleven railways) 30,125 The reader may be interested in a few illustrations of the curiosities and nonstrosities that adorn our railroad geology and are to be found by the train-load in our existing wilder- ness of rates. We find peas and beans paying 70 cents a hun- (^) U. S. Industrial Commission, 1900, vol. IV, p. 458. The Chaos of Rates. 171 dred for the same transit tomatoes made at 44 cents, or a little more than half the bean price. Flour at one time is car- ried at much lower rates than wheat; at other times on the same roads wheat has paid 4 to 1 1 cents less per hundred than flour. Furs and fur scraps have been made double first-class, while hats and fancy products for which the furs constitute the raw materials have been made first class.' The Southern Rail- way put soap in the sixth class with a rate of 49 cents a hun- dred (or 33 cents when shipped by a large manufacturer), while pearline was put in the fourth class with a rate of 73 cents. One make of soap was placed by many railroads in the second class, while other soaps of similar use and value were in the fourth class.' Think of patent medicines ranked as first class while ale and beer are fourth class; wagon hubs at a higher rate than wagon boards ; railroad ties at a higher rate than lumber, etc., etc. Think of carrying imported goods across the continent to California at $1 per hundred, while domestic goods of the same sort in the same trains paid $3.88. Imagine a tariff that makes the rate less from Cannon Falls east if you ship the goods to Minneapolis first and then from Minneapolis back through Cannon Falls to Chicago, than from Cannon Falls direct to Chicago ; rates that make it cheaper to ship from Rochester to New York and then back through Rochester to Cincinnati and St. Louis, than to ship direct from Rochester to St. Louis ; rates that make it pay a producer here to ship across the continent and across the ocean and then back across the ocean again to destination in this country instead of shipping direct to desti- nation here. That's the kind of rates that our railroad traffic men have made whenever it suited their ideas of railroad in- terest and the general "fitness" of things. In my mail this morning is the report of a case before the Interstate Commerce Commission, Nov. 29, 1905, in which it is shown that the Seaboard Air Line charges $5 for 124 miles from Fernandina, Florida, to Savannah, Georgia, or about 4 cents a mile for this interstate journey, tho the rate for pas- senger charges is fixed at 3 cents a mile in both Florida and (') 9 I. C. C. Decis., 78; Rep., igoi, p. 38. (') 4 I. C C. Decis., 733. New York Central, Pennsylvania, Wabasn, Santa Fe, etc., a whole page full of railroads. 172 Relations of the Railroads to the Public. Georgia, and the local rates are made on that basis, so that it is cheaper to pay the two local fares than to buy a through ticket. The rate on canned goods from Hoopeston, Illinois, to Nash- ville, Tenn., is 27 cents per hundred. From Hoopeston to Memphis, several hundred miles farther, the rate is 19 cents. From Greenwood, Indiana, to Nashville the rate is 25 cents; to New Orleans 21 cents; to Mobile 20 cents, and to Memphis 19 cents.* The Chesapeake and Ohio Railway, the Norfolk and Western and the Baltimore and Ohio all carry lumber from the Blue Ridge Mountains. The rate from the Shenandoah Valley to Philadelphia is 16 cents per hundred, while from points in the region a hundred miles or so further west the rate is only 14 cents. The rate on lumber from Chattanooga to Buffalo via Cincinnati is 20 cents, while from Chattanooga to Cleveland, a shorter haul over the same road, it is 23 cents." Suwanee is 31 miles nearer New York than Atlanta, yet with a rate from New York to Atlanta of 48 cents the rate to Suwanee is 86 cents, or the through rate to Atlanta plus the local rate back from Atlanta to Suwanee. The Southern Rail- way carried bananas in 1902-3 from Charleston to Lynchburg for 20 cents a hundred pounds, but if the fruit stopped at Dan- ville part way on the road to Lynchburg the rate was 43 cents a hundred. Further illustrations of the chaotic condition of our railway tariffs will be found in Chapter III, and others will appear later in this chapter and in subsequent chapters. Our railroads admire flexibility in rate-making, but they spend no admiration on simplicity. The passenger tariff pos- sesses a semblance of law and order. But our freight tariffs are in chaos. A certain degree of complexity is practically unavoidable under present industrial conditions. Even where a distance tariff has been adopted as the basis of the system, as in Germany, Belgium, Austria, and other countries where the roads are operated by the Government, it has been found necessary to modify the rule more or less by the zone prin- ciple, charging a lower ton-mile rate for long distances than for short hauls, and also to make a vast number of special rates to meet the conditions of various industries and markets. So (*) Sen. Com., 1905, pp. 1761-2. (=) Sen. Com., 1905, p. 1878. The Chaos of Rates. 173 that even in the case of little Belgium, tho the principles of the Gbvernment tariff can be made clear in a few pages, the tariff itself in complete form fills six volumes, one of which, on which I am resting my pad as I write, contains 560 big pages, and the smaller ones range from 120 to 350 pages each. Even such a tariff as this, however, is simple compared to the mountainous body of rates on our two thousand operating railway systems. There is definite system and singleness of purpose behind the Belgium and German tariffs, but the pur- poses and methods behind our railroad tariffs are almost as chaotic as the rates themselves. We have open rates and secret rates ; rates to develop busi- ness and rates to kill off business ; industrial rates and political rates ; rates born of friendship and rates born of enmity ; rates forced on the railroads and rates forced by the railroads ; rates established by law and rates established in contravention of law; classification rates and commodity rates; daylight tariffs and midnight tariffs; competitive rates, non-competitive rates, and combination rates; rates based on distance, rates without regard to distance, and rates in defiance of distance ; extortion- ate rates and rates below cost. The "principles of rate-making in the United States" is a topic conducive to laughter among railroad men, tho they make a long face before legislative committees and declare that rate- making is a difficult science, the principles of which are so complex that no one but an expert railroad traffic manager can be trusted in the same room with them. Any other kind of a man is liable to get the delicate machinery out of fix. The complexities of rate-making may be illustrated by the sugar- rate case described by F. B. Bowes, assistant traific manager of the Illinois Central Railroad, in his testimony before the Senate Committee of 1905." In 1903 the eastern sugar refineries wanted a readjustment of rates from New Orleans to give them a better chance in comparison with the refineries of the South and West. So the question was taken up, and before they got through the sugar rates for the whole country, from ocean to ocean and the lakes to the gulf, had to be gone into. The general freight agents tried to adjust the rates and failed, then the traffic managers tried and failed, then the vice-presidents in charge of traffic, and finally the presidents of railroads took it up, and after a year and a half and 20 meetings of sugar men, jobbers and railroad (') Sen. Com., 1905, pp. 2730-1. 174 The Railways, the Trusts, and the People. men, it was settled about the first of January, 1905. After the settle- ment was reached, a meeting of the rate clerks and the assistant gen- eral freight agents and some of the general freight agents was held to check in and line up the rates to all the interior points. Those gentle- men (there were 15 or 20 of them) were engaged three days in getting the rates adjusted on this new basis to these different points, so that the jobber at these interior points would know what sugar was going to cost him. There is an army of traffic men and rate clerks hard at work day and night (for the "midnight tariffs" are very com- plex and delicate, too, you know), some of them making rates and others trying to find out what the rates are. The first lot has much the easier time and gets much the larger pay, a "first-class" traffic man being able to command something like $50,000 a year, his first-classness being judged by his ability to adjust rates so as to gather large amounts of freight to his road under conditions that will pay a profit. The Interstate Commerce Commission has recognized distance, bulk, quality, value, risk, cost of service, competition, what the traffic will bear, etc., as elements to be considered in rate- making. But no set rules can be laid down. The fixing of a rate in any individual instance is regarded as a matter of judg- ment and discretion in view of all the circumstances of the case. The difference between the Commission and the railroad traffic man is that the Commission seeks to exercise the said discretion with a view to justice and the public good, while the traffic man must aim at profit rather than justice or the public good, or else lose his job. The two principles on which the railways put most weight in their open rate-making are "competition" and "what thei traffic will bear." If goods can go by water from New York to San Francisco for $1 a hundred the railroads feel bound to meet that rate regardless of any question whether the due economy of industrial power may not require that such goods should go by water. The railroads want tonnage and care very little about the economy of social forces. So if a short route makes a 13-cent rate on grain to the seaboard the long routes make the same rate. And whatever rates a given rail- way system offers the industries of its section for transporta- tion to the principal markets, the railways of other sections The Chaos of Rates. 175 will meet so far as possible in order to put the corresponding industries of their sections into the big markets on equal terms. For example, the Boston and Albany and the New York Cen- tral system reduced the rates on wire from Worcester, Mass., to Chicago, so that the mills in Worcester might do business in the West in spite of the short haul and low rates from the Pittsburg mills to Chicago.' So California fruit is carried at rates that allow it to compete in eastern markets with fruit from Florida, Georgia and Delaware. This equalization of industries is in the main a beneficent principle, but it has under present conditions some serious consequences, as we shall see hereafter. "What the traffic will bear" is a rule that has two meanings of very different moral and economic fiber. In one sense it means that rates must be made low enough so that the traffic will move. Heavy articles of low value like building stone, iron ore, coal, etc., must have low rates or else their trans- portation would cost more than they would be worth at the end of the journey, and they would stay at home. So the rail- roads make a rate on Jersey brick to southern points that will enable the northern bricks to move south. In this meaning the rule covers much of the same ground as the principle of meet- ing market competition, and also the fundamental conditions of the development of traffic. The Great Northern Railroad oflers some excellent illustrations of the creation of business. The road taps the timber regions of Oregon and' Washington, and brings many trainloads of forest products east. The west-bound traffic naturally flowing over the line was small in comparison with the east-bound business, and many of the cars must go back empty unless new business could be created. So President Hill made very low rates on cotton to the Orient, and soon his west- bound cars were carrying 120,000,000 pounds of cotton every year and something like 300,000,000 yards of cotton cloth. Mr. Hill inquired what foreign rails were selling for in Japan. He found the price was $29 a ton in Yokohama. He telegraphed our steel men at Chicago that if they would make a price of $19.50 on American rails the Great Northern would take them to Yokohama for $8 a ton, or 36 cents a hundred across the continent and the Pacific Ocean; and President Hill's railroads and steamships landed 15,000 tons of rails in Japan, the first American rails that had been sold in that country. He carried Baldwin locomotives, too, from Philadelphia to Yokohama at about (') Sen. Com., 1905, p. 923, testimony of Pres. Tuttle of the Boston and Maine Railroad. 176 Relations of the Railroads to the Public. the same rate that some of our railroads charge to take them 500 miles." He carries nails and wire in great quantities from Lake Erie to Hong- kong for 45 cents a hundred, about the same cost on a keg of nails as to haul it from the city to a suburban home." In another sense, the famous railroad rule of charging "what the tarifif will bear," means charging all the traffic will bear, and the railways are quite as vigorous in applying this mean- ing as the other, tho they say much less about this latter inter- pretation of the punning motto. I was told in California that the Southern Pacific has made a practise for many years of fixing rates on the basis of squeezing out all that the business can pay. They investigate the richness of ores, and the value of shipments of beans, prunes, potatoes, etc., find but how much the shipper can pay without driving him out of business and fix the freight rates at the level that will just leave his head above water. For example, potatoes were 25 cents a bushel in Oregon and would bdng $2.50 in Los Angeles; so the railroad made the freight rate $2.10 a bushel, leaving the shipper just enough margin to keep him moving. I put this and other cases to the traffic manager of the Southern Pacific Railroad just as the facts were stated to me, and he' admitted that the road made rates on ore in proportion to its value, but denied the potato indictment, saying that the road was not making rates on that plan and never did. A little later, however, I talked' with another leading traffic man on the Pacific Coast, and when I stated the potato case he said, "Well, how would you make that rate?" Traffic men of the Santa Fe, the Union Pacific, and a number of eastern roads, too, have in private conversation expressly or impliedly approved that method of making rates, and their practice is largely in line with that plan. For instance, in Denver I found the Union Pacific charging $5 a ton for low grade ore and $25 a ton for high grade ore for about the same haul and under substantially similar conditions. This is a good' example of the art of plucking the goose where the feathers are thickest, an art in which all our railroads are adept, tho the system seems to be most highly developed in California, where the complaints of shippers have been multitudinous and emphatic, especially before the Santa Fe came in. Owners of specially fertile and well located orch- ards and vineyards held up by an adjustment of rates that brings them to market little better off than the owners of much poorer and less favorably situated ranches naturally find it hard to appreciate the beauties of making rates according to what the traffic will bear. (') See Pres. Hill's testimony, U. S. Senate Committee, 190S, pp. 1473 et seq., 1493, etc. Also Spearman's "Strategy of Great Railroads," pp. 69-90. {^) In conversation with me about his railroad policy, he laid especial stress on this point. He can afford to make these low rates because his cars must go west anyway; it costs nearly as much to take the cars empty as full, and any rate above the additional cost due to handling the new business pays. Moreover, Pres. Hill uses very large transportation units. He builds enormous steamships and hauls his cars in giant trains, and this is one of the secrets of economy in transportation. The Chaos of Rates. 177 A railroad makes low rates to develop business and meet competition in transport and market, and high rates to extract the juice from business that lies at its mercy and must move anyway. That is the full circle of what the traffic will bear/" The result is a complex mixture of abnormally low rates and exorbitant charges — a conglomerate mass from cruelly exces- sive rates for traffic on which the railroads have a grip, down to very low rates, below the cost of haulage sometimes, for traffic that has a grip on the railroads. The shippers on whom the railroads have a hold must pay a part of the freight for the shippers who have a hold on the railroads. Big shippers and big cities get some of their freightage be- low cost, while small shippers and country districts pay more than the fair rates, two or three times the fair rates very often, the local rates on many roads being but little below the cost of transport in the old stage-coach and teaming days. To ship 4 horses may cost $99, while the charge for 25 horses is only $100 on the same route." From Chicago to Emporia, Kansas, the freight on a car of stoves is $122, against $98 on a car of iron pipe and $91 on a car of sugar. To Hutchinson the stove rate is $144, while the Sugar Trust can send a carload' of sugar for $g6. The rail- roads made the oil rate to Kansas City from Chanute in the Kansas oil fields $93.50 a car for the independents, while the freight on a car of wheat for the same haul was $50, for corn $40, for machinery $66, for cattle $28 and for fruit $30. The Armour car-line charge for re- frigeration on a car of strawberries from Tennessee to Chicago is $84 against $30 on the Illinois Central car-line, and $15 actual cost. And so I might go on until I had written a huge volume on our chaotic trans- portation rates. Excessive rates and unfair discriminations compose the warp and woof of our railroad tariffs. And overcharges on the business as a whole are rapidly increasing in spite of the falling average ton-mile rate." So far of the making of open rates, but beneath the pub- (") Hadley says: "The system of making rates to develop business, or of charging what the traffic will bear, rightly applied, has been the means — and we shall find it to be the only possible means — of securing efficient service and low rates. But it has been so abused and misunderstood by all parties as to have become a synonym for unchecked extortion." And again: "The principle of charging what the traffic will bear gives the railroads a dangerous power, and one which is often abused; a power against which competition furnishes no remedy," pp. 17, 123-4, "Railroad Transportation," by A. T. Hadley, now president of Yale University. President Hadley's book is the ablest exposition we have of the principles of open rate-making from the standpoint of the high-grajde railroad traffic manager. m I. C. C. Decision, 333. (") The ton-mile rate is no gauge of profit unless you take the^ density of traffic into account and all the other elements affecting cost. For a discussion of the increase of rates and railway earnings, see chapter on Taxation without Repre- sentation. 178 The Railways, the Trusts, and the People. lished tariffs an underground world of secret rates of every possible size and shape is hidden from the profane gaze of th^ public, except here and there when the Interstate Commission or some other intruder takes off the lid. We have seen in the chapter on Railway Favoritism that the mass of actual rates on a single road may vary 10 to 73 percent from the tariff rates, and have learned how the various trusts and other big shippers get rebates, commissions, elevator fees, divisions with switch roads, mileage, high speed, free cartage, expense bill privileges, and many other forms of concession which are equivalent to secret rate-making whereby the chaos of the pub- lished rates is made still more chaotic — chaos raised to the two thousand three hundred and twenty-ninth power. No wonder that a distinguished railroad officer, one of the highest authorities on traffic affairs, when pressed by the Inter- state Commission for a clear explanation of the methods of rate-making in use on his road, said, finally : "We make rates very much as a honeybee makes its cells : by a sort of instinct." Those who examine his rates may agree with him that no higher principle than instinct was at work in making them, a sort of combination instinct of self-preservation and aggressive acquisition; but, missing the regular symmetry of the honey- bee's cells, they may doubt whether the railroad instinct is of so high a type as that of the bee. Another traffic manager, whose salary is said to be $50,000 a year, when asked question after question by the Commission as to the reasonableness of his rates, said at last: "To tell you the truth, gentlemen, we get all we can." " David Willcox, President of the Delaware and Hudson Rail- road, one of the most vigorous opponents of government regu- lation of rates, says that railroad rates should be left to the control of "natural forces." The title page of his address at Cornell University, Dec. 15, 1905, headlining this idea in large black type, is one of the most humorous documents in railroad literature. The Beef Trust and Oil Trust are excellent ex- amples of the "natural forces" that fix railway rates in the absence of public control; and the Salt Trust, Sugar Trust, Steel Trust, Coal Combine, and other giant shippers, are all (") Commissioner Prouty's Address on the President's Railroad Policy, Ginn & Co., 1905, p. ig. Taxation Without Representation. 179 beautifully adapted to perform the complex duty of fixing trans- portation rates, which the railroads say is altogether too diffi- cult a job to be undertaken by a public commission appointed by the President to act for the people of the United States instead of the stockholders of a trust or a railroad. Chapter XII. TAXATION WITHOUT REPRESENTATION. Railroad rates are not only chaotic and unjustly discrima- tory, but, in many cases, excessive. The monopoly element in transportation enables the managers to charge more than a fair equivalent for the service rendered in respect to large masses of traffic. The unreasonably low rates accorded to favored shippers necessitate the imposition of unreasonable charges upon other shippers, and entirely aside from any dis- criminative motive or purpose, or any reference to the effects of discrimination or the need of a financial balance for such effects, railroad managers frequently charge excessive rates on traffic subject to their power. They get all they can, as we have seen in the preceding chapter, and if combination should be carried far enough to defy the pressure of giant shippers playing one road against another, it is quite probable that practically the whole body of rates would be put above the fair level, except so far as shippers having large influence upon railroads from the inside might modify rates in their own favor, and except so far as public authority might take control of the rate-making power. The total revenue of most of our railroads is even now largely in excess of the revenue to which they are entitled, as is evident from the fact that they are able to pay interest and dividends upon a capitaliza- tion double the actual value of the real investment.' Transportation charges are in the nature of a tax. Jurists and railroad men and writers of the highest authority so de- clare,° and common reason agrees with their report. Both the (') See chapter on Watered Stock and Railroad Graft. (2) "The freight rat? has been properly termed a tax, imposed for the benefit of the carrier." (Interstate Com. Rep., 1903, p. 14.) The right of a railway "to take tolls or fares" is a species of "delegated taxa- i8o Relations of the Railroads to the Public. government and the railroads impose charges; i. e., put taxes upon commerce, etc., the revenues being intended in the one case for the pubUc benefit and in the other for private benefit. Neither government taxes nor railroad charges are determined ordinarily by agreement as in case of a sale of a horse or a wagon in open market, but are fixed by sweeping "tariffs," broad decrees, orders issued by authority. Both may be fixed by agreement in special cases, but this method of fixing public taxes or transportation charges by private bargain is not ortho- dox nor in good odor in either case. The elements of agree- ment on the whole are greater in the government case than in the other. Our people have much more to do with govern- ment taxes — deciding upon, agreeing to and controlling their incidence and amount — than they have in respect to railroad taxes. The ordinary person has nothing to say in the fixing of railroad charges, while he has something to say in the fixing of government charges, for he helps to elect the board of directors that determines the government charges, whereas tion. * * The right to make roads and levy toll is a prerogative of sovereignty, and in the hands of a subject is a franchise, a privilege or immunity of a public nature, which cannot be legally exercised without legislative authority. * * _ The right to make and maintain a railway, and take tolls or fares is such a privilege. A railroad is but an improved modern highway." (Chief Justice Ripley in Blake vs. Rd. Co., 19 Minn., 368; see also Chancellor Walworth's judgment in Beekman vs. Rd. Co., 3 Paige Chancery, N. Y. 74; also 4 N. Y. Rep., 431, and 25 Wis. 182, Chief Justice Dixon's decision.) "Railway rates are taxes, and all the rules applicable to the levying of taxes are applicable to the levying of railway tolls or rates." (A. B. Stickney, Pres, Great Western Rd., National Congress of Ry. Commissioners, 1896, p. 16.) "The revenues collected by railways are not in the nature of payments for services rendered, but in the nature of a tax levied and collected by exercise of the sovereignty of the State by and under its permission and license." (Stickney, "The Ry. Problem," p. 163; see also pp. 242-6 where a number of legal authorities are cited in favor of the view he states and some contra — 54 Pa. St. Rep., 310, and 62 Pa. St. Rep., 228, etc.) Lewis says: "Many jurists and many decisions affirm directly, or by implica- tion, that railway charges are in the nature of taxation." ("Nat'l Consolidation of Railways," p. 128.) Whatever articles one buys he purchases railroad transporta- tion inwoven in the price. "A railroad," says President Mellen of the New York, New Haven & Hartford Railroad, "lives by a tax upon the community." "The power to fix freight rates," says Governor Folk, "is the power to tax, and the power to tax is the power to destroy." "In its essence," says Ray Stannard Baker, "a freight rate is a tax levied upon the people: a tax upon every mouthful of food we eat, every garment we wear, every timber in the house we live in, every shovelful of coal we burn. No other sort of taxation is so universal or so heavy as the freight rate. In America each person pays about $7 annually for the expenses of the Federal Government; but the railroad tax in freights averages each year over $26 for every man, woman and child, or nearly four times the Government tax." Brooks Adams says: "Railroad rates are taxes. The Government farms out the right to collect this tax to private persons, who are under great temptations to abuse their trust. In fact they do levy this tax as suits their convenience, and they can and do confiscate private property almost at pleasure." (Sen. Com., 1905, p. 2924.) Ex-Governor Larrabee of Iowa, speaking of our railroad managers, says: "This little band of irresponsible officials is exercising a vastly greater power of taxation than was ever exercised by Congress. It has increased its levies by various devices from 50 to 150 millions of dollars per year until the tax amounts to over Taxation Without Representation. i8i he has no representation on the railroad board. And he cannot escape one of these taxes any more than the other. He may refrain from riding- in the cars if he Hkes, but he must eat and wear clothes and have warmth and shelter, and he pays the transportation tax in the price of food, and cloth- ing, and coal, and nearly all the commodities he buys. So, on the government side, he may refrain from using the mails or owning land, but he has to pay taxes indirectly in the price of the necessaries of life. In both cases the tax may be evaded to a certain extent — wholly perhaps by leaving the country, bag and baggage, and going to mid-Africa or some other secluded spot where he won't buy any goods that have travelled over the railroads or paid government taxes. In both cases men of large influence or small conscience or both can get con- cessions — rebates in one case and low assessments in the other. Even the threats of taking one's business elsewhere, by which large interests obtain low rates, can be paralleled by the threats $2,000,000,000 per annum, or more than three times the total revenue of the United States Government from all sources." Chas. Francis Adams, the famous lawyer, publicist and ex-president of the Union Pacific Railroad, constantly speaks of transportation charges as taxation. He says that "watered stock calls for an annual tax levy of many millions a year;" that "the proceeds of the transportation tax are habitually perverted to the work of construction;" that "the total transportation charges constitute a tax in com- parison with which all the imposts of government are trivial;" and that "certain private individuals, responsible to no authority and subject practically to little or no supervision, but looking solely to their own interests or to those of their Immediate constituency, yearly levy upon the internal movement of the American people a tax," which whether it be in itself excessive or not "may be raised in an annoying and vexatious manner; or so as to favor one locality (or individual) at the expense of another, oppressing one and relieving another unduly; or it may be exacted in payments which fluctuate wholly at different times, destroying all basis of sound business calculation ; or it may be regulated so as to exact the greatest compensation possible for the least possible service." After which he calls attention to "the obvious danger of committing so extraordinary a power to private individuals." ("The Transportation Tax" in Chapters of Krie, pp. 358, 360-2, 409, 413.) The reader may also be interested to examine the views concerning "The Transportation Tax," expressed in the North American Review for September, 1904. Now and then a railroad man clings to the idea that railroad charges are a matter of contract, not only with those seeking to evade the published tariff, but with the general public. Such men neglect to note the fact that the ordinary shipper has to accept whatever terms the railways make or else not ship. Within the limits of possible shipment his "right of contract" is a myth. A few years ago the president of a great railroad, testifying before the Interstate Commerce Commission, had his attention called to the position of shippers doing business between points on his line not connected by any other road, and he took the ground that he should be left entirely "free to contract with the shippers on his route." Commission: "The shipper is obliged to pay whatever you charge." Ry. Pres.: "No." Commission: "What could he do?" Ry. Pres.: "He could walk; he can do as he did before he had a railroad, as thousands do now who have no railroaids." (Page 15 of reprint of an article by Chas. A. Prouty of the Interstate Commerce Commission, North American Review, November, 1898.) It is a little surprising under such circumstances that the said thousands con- tinue to walk and go without railroads that will carry their goods at reasonable rates, when they could supply themselves with railroads so easily by using their ballots to purify the government and take over the railways for public use. i82 The Railways, the Trusts, and the People. of manufacturers, insurance companies, etc., to go to other municipalities or states unless their taxes are lowered. And the silent sort of competition works on both lines also. I have known wealthy men to leave one cty or town and quietly go to another because the taxes were lower there. Our governments tell us how much we must pay for de- fense, education, legislation, judicial procedure, roadways, postal service, etc., and our railroads tell us how much we must pay for transportation, building new roads, paying divi- dends on watery securities, mantaining lobbies, inducing our legislators to pass laws we don't want, and other industries to which the railways devote their attention. A good government imposes no more taxes than are needful to pay the cost of the services it renders under careful admin- istration. It may make the charges on one or more services larger than the cost of those services, as England and Ger- many do in the case of taxes on communication, on the prin- ciple that funds for general civic purposes may be more easily and advantageously obtained in this way than by direct taxa- tion, but a good government will not make the whole of its exactions larger than the fair cost of the services it renders. A bad government, on the other hand, administered for private profit instead of the public good, will make its taxes cover cost and as much more as the people will submit to, in order that the bosses, rings, emperors, kings, aristocrats, or other grafters and parasites, may have funds for their private pur- poses. Our railroads are run on the bad government plan. Trans- portation charges are imposed on the community far beyond the fair cost of the services (including reasonable interest on the investment) in order that industrial monarchs, over-paid officials, lobbyists, and other grafters, including corporation servants masquerading in legislative bodies as representatives of the people, may have plenty of funds for all the purposes that engage their attention beyond the comparatively narrow and uninteresting field of transportation. TalJapoleons came. See the chapters on Railroad Wars and the Railway IJmpire. 228 Relations of the Railroads to the Public. his palace car, his journey is like a royal progress. Governors of states and territories bow before him; legislatures receive him in solemn session; cities and towns seek to propitiate him, for has he not the means of making or marring a city's fortunes ?" ' In former years Vanderbilt, Gould, Fisk, Scott, Huntington, Stanford, were magic names in the railroad v^orld, with Rocke- feller looming up as a sort of co-monarch, or co-occupant of most of the thrones. To-day Vanderbilt, Morgan, Gould, Hill, Cassatt and Har- riman are the railroad kings, with Armour in the background and Rockefeller a mighty power in nearly every throne room,* and reaching out after all the crowns. Commodore Vanderbilt. — The Vanderbilt House is the oldest of ex- isting dynasties, and one of the best. For three generations imperial power has been transmitted from father to son. Cornelius Vanderbilt was born in 1794. At 16 he was sailing a ferryboat of his own from Staten Island to New York. In 1824 he organized a company which leased and bought ferries, constructed fleets of steamers for the Hud- son River and Long Island Sound business and became the biggest concern of the kind in the world. The "Commodore" as he was called was supposed to be worth ten millions in the early sixties" when he transferred his interests from steamboats to railroads. He had already bought some railway stock, but now he began buying Harlem stock on a large scale, and in 1863 became President of the road at 70 years of age. He had begun buying at 3, for the road was unprofitable, but within a year by improving the road and making it pay and by manipu- lating the market he had forced his opponents in Wall Street to pay him 2S5 for the stock" they needed to settle their transactions. In 1864 he became president of the Hudson River Railroad. The same year he began buying stock in the New York Central, and became its president (3) "The American Commonwealth," vol. II, p. 653. (*) Standard Oil directors are on all the great railroads of the country. See Ida Tarbell's "History of the Standard Oil Co.," II, 268. See also Lloyd's "Wealth Against Commonwealth," 136, for an illustration of the power of Oil to command the railroads in battalions. For^an idea of Armour's power over the railways, read the Interstate Commerce Commission's beef investigations, the report of the U. S. Bureau of Commerce on the beef combine, and the articles of Ray Stanard Baker in McClure's for January, 1906, and following numbers. (^) The authorities are in hopeless conflict in regard to dates. One of the best says that the Commodore sold all his steamboat interests in 1859 and went to speculating in Wall Street. But the fact that he tried to negotiate a sale of his best ship "Vanderbilt" to the Government in 1862 indicates that the former state- ment is incorrect. There is an interesting anecdote connected with this navy episode. The vessel had cost Vonderbilt $800,000 and was one of the fastest ships afloat. The Govern- ment misunderstood the Commodore's intentions in the course of the negotiations and accepted the ship as a gift. Congress passed resolutions thanking the Com- modore, and presented him with a gold medal bearing the inscription, "A grateful country to her generous son.'] After carefully reading the resolution the Com- modore is reported to have said: "Congress be damned! I never gave that ship to Congress. When the Government was in great straits for a suitable vessel of war I offered to give the ship if they did not care to buy it; however, Mr. Lincoln and Mr. Welles think it was a gift, and I suppose I shall have to let her go." (') See Hadley's Statement in Scribner's, Oct, 1888, p. 478. Railway Potentates. 229 in 1867.' He put injection after injection of water into the stock of these roads and "consoHdated" the watery compound in 1869 into the New York Central & Hudson River Railroad. The Harlem was taken into the combine a little later on a lease for 400 years. Vanderbilt's dividends accumulated at the rate of $2,000,000 a year, and he soon extended his control to the Lake Shore, the Canada Southern, and the Michigan Central. "From the moment Vanderbilt stepped into the management of the Central," said the historian of the Gould & Vanderbilt railroads in 1869, "but a single effort seemed necessary to give the new railroad king absolute control over the railroad system, and consequently over the commerce of New York. Vanderbilt is but the precursor of a class of men who will wield within the State a power created by the State but too great for its control. He is the founder of a dynasty." ' The Commodore did not hesitate to buy legislatures as well as rail- roads. By consolidation, excellent management, stock watering and manipulation in Wall Street, by organization, speculation and the brute force of his millions, he acquired a fortune of $100,000,000,° which has been enormously increased by his descendants. It is a question on which scientists are not yet agreed whether the people exist for the railways, or the railways for the people. Perhaps the Commodore would have said "The railways are for the people and the people are for the railway managers." At any rate that seems to have been the principle on which he acted. But he gave the people more for the taxes he collected from them than most monarchs do. The Vanderbilts are among the most benevolent of our railroad potentates. They have never wrecked a railroad. With lines reaching half the peo- ple of the United States, they render everywhere excellent service and charge no more than they can get. In strong contrast with the constructive policy of the Vanderbilts are the destructive methods of the Erie managers of the last generation. Jay Gould and Jim Pisk. — Jay Gould was born on a farm in 1836. At 15 he became a clerk in a tinshop. Later he made some money at surveying and making maps and in lumber, tanning and banking. In 1857 he became interested in railroads, starting with a line from Troy, N. Y., to Rutland, Vt., which he bought at 10 cents a share. He was President, Treasurer and General Manager. In about a year he con- solidated with the Saratoga Railroad and in 1859 sold out at 120. He then went to New York, became a broker, lost money speculating in (J) It is often stated that Vanderbilt united tlie little roads between Albany and Buffalo into the New York Central, but this is an error. The ten roads between Albany and Buffalo were consolidated into the New York Central in 1853, long before Vanderbilt became a factor in the Central lines. (See Poor's Manual for 1887, and report N. Y. State Rd. Commissioner at the time.) (^) In another place Adams says: "Vanderbilt embodied the autocratic _ power of Caesarism in the corporate life." The worst of it is that while Caesar dies the corporation does not. It possesses not merely sovereign but divine attributes. Yet it does not act as a divinity may be supposed to, tho it may be the divinity referred to in the phrase, "There's a divinity that shapes our ends." (*) Ten millions between his i6th and 66th years and ninety millions from 66 to 83. He gave $1,000,000 to Vanderbilt University. 230 The Railways, the Trusts, and the People. Union Pacific, but made millions out of Missouri Pacific, got in with Drew and Fisk, captured the Erie in conjunction with Fisk, and took in Tweed and Sweeney of Tammany fame as pohtico-railway partners. His management of Erie became one of the greatest scandals in our history, and the climax of his gold corner, "Black Friday," Sept. 24, 1869, was the most tremendous panic day Wall Street ever knew. He organized great railroad combinations in the Southwest, and created the American Telegraph Company with which he fought the Western Union and ultimately became its master. High authority^" states that at his death his railway holdings alone were valued at $75,000,000 with- out counting his immense interest in Western Union or other prop- erties in his possession, but the usual estimate of his total wealth is 50 to 72 millions." Jim Fisk was the son of a New England peddler and was himself a peddler in his youth. He became a partner in the Boston firm of Jordan & Marsh, and made much money by shrewd bargaining, and it is said by smuggling cotton through the lines during the civil war. At any rate his methods were so dangerous that Jordan & Marsh paid him $100,000 to get out, and he went to New York and fell in with Drew and Gould and became a railway king. What these men did with the Erie, how they used it to capture millions by fraud, to corrupt legisla- tures and courts, and even to assault their enemies with Erie mobs and locomotives, we have already seen in the chapters on Gambling, Stock- Watering, Railroad Wars, and Railways in Politics.^ Adams says : "This property (the Erie) was in effect, like all great railway corporations, an empire within a republic. It employed 15,000 men. Its capital stock amounted to $35,000,000 and its receipts ex- ceeded $15,000,000 per annum. Over all this wealth and influence, greater than is absolutely and personally controlled by most kings, and far too great for the public safety either in a democracy or in any other form of society, the vicissitudes of the time placed two men in irresponsible control. They established themselves in a palace. Mr. Fisk and Mr. Gould bought a huge building of white marble containing a large theatre or opera-house. They also purchased several smaller houses adjoining it. The opera-house cost about $700,000, and a large part of the building was at once leased by the two purchasers, to them- selves as the Erie corporation, to serve as offices. This suite of apart- ments was then furnished by themselves, as representing the corpora- tion, at an expense of some $300,000, and in a style which would be magnificent in almost any palace in Europe. The adjoining houses were connected with the main building; and in one of these Mr. Fisk had his private apartments, with a private passage to his opera-box. (10) "Notable Americans," Boston Biographical Society, 1904. (") The Century Dictionary gives the latter figure. (12) Personally both Gould and Fisk were lovable men. Fisk was very genial and a great giver. He often gave away as much as $300,000 a year in small amounts to working people and others of moderate means who came in contact with him. So his father told me years ago. The old man was a magnificent specimen of humanity both physically and morally. The Erie Fisk inherited the physique but not the morals. Railway Potentates. 231 He also assumed direction of the theatre, of which he became manager- in-chief. To these royal arrangements he brought tastes which have been commonly charged as the worst results of royal license. The atmosphere of the Erie offices was not supposed to be disturbed with moral prejudices; and as the opera itself supplied Mr. Fisk's mind with amusement, so the opera troupe supplied him with a permanent harem." " An industrial kingdom in unscrupulous hands may become a terrible scourge ; and the trouble is that there is no telling when such kingdoms may come into such hands. The old Erie management was, however, unique in the degree of its wickedness. And the descendants of Jay Gould are among the best people we have. It is doubtful if there is a woman of nobler spirit and purpose in the country than Helen Gould, and George Gould has all the ability with none of the "ultra-cussedness" of his father. Leland Stanford and C. P. Huntington. — Many people in California tell me that the rule of Stanford & Huntingdon was quite as tyran- nical as that of Gould & Fisk, tho the despotism broke out in some- what different spots. Leland Stanford was a New York farmer's boy. He studied law, sailed for California in 1852, and went into business in San Francisco. In 1861, at the age of 37, he was elected Governor of California. Before this he had been chosen president of the newly projected Central Pacific Railroad, and had been to Washington to see Lincoln, and lobby for the road in Congress. . In 1885, while still a railroad poten- tiary, he became United States Senator from the legislature his rail- road owned. And first and last, by ring-made construction contracts, and other frauds, using underpaid labor, bleeding the state by oppres- sive freight rates, and establishing a conscienceless and despotic rail- road government of California, he grew to be a multi-millionaire, and founded Leland Stanford Jr. University with $8,000,000 worth of land and $20,000,000 of total endowment, — an excellent illustration of what John Graham Brooks calls "the Great Bluff of our time, the putting of gratuities and benefactions in the place of justice." C. P. Huntington was born on a Connecticut farm. At 14 he hired out as a farmhand at $7 a month. At 16 he went to New York, got a consignment of clocks on credit, and peddled them through the coun- try. In 1849, when he was 28, we find him in the hardware business in California. He was still a small storekeeper in San Francisco in the sixties when he helped to launch the Central Pacific. He shared with Stanford in the construction frauds and other deals that were arranged in legal form, in addition to which he and Stanford took C) "Chapters of Erie," 106-7. I do not know of any railroad king who openly lives in that way now, but history shows what uses may be made of the power conferred by the control of these great properties, if the owners are so disposed. Some of the dwellings of our present railway monarchs, such as the Gould estate, at Lakewood, with its magnificent grounds and private theatre, and the Vanderbilt estates in various parts of the country, as on Lake Champlain, in N. C, etc., strongly suggest the castles and estates of royalty in Europe. 232 Relations of the Railroads to the Public. nearly five millions in a few years from the assets of the company, over which they had absolute control, without stating the uses to be made of the money." At the time of his death in 1900, his fortune was estimated at fifty to eighty millions of dollars. During his life he gave some small amounts to Hampton Institute. Both these men rendered great services to the country, but marred their records by fraud and corruption and the tyrannical use or abuse of power for their own aggrandizement. The supreme' wrong of linking wealth and power with evil-doing, and especially of acquiring wealth and power by evil-doing, is the perversion of the ideals of youth. This is even worse than the corruption of government. In either case, if the road to success lies through con- scienceless conduct, character is at a discount. A man of the highest morality will of course refuse to remain in any business which requires him to violate his conscience. President Andrews of the Big Consolidated (street railways of Cleveland) is that sort of man. He was ready to resign his presidency rather than be a party to any scheme to corrupt the councils of his city in order to accomplish the purposes of his company. Our railroad kings are not of that stamp. But as a rule their purposes are right. They resort to wrong methods to protect their companies, extend facilities and build up business, ends which in themselves are right. Improper personal motives control their action in comparatively small degree. This cannot be said of some of the trust potentates who are behind and in many cases dominate, the railways — the Armours, Swifts, Have- meyers, Rockefellers, etc., who systematically compel the railroad kings to violate the law and commit injustice under threat of serious losses to their companies. John D. Rockefeller. — Take John D. Rockefeller, for example, a poten- tate of potentates, who dominates more or less about all the railroad kings in the country. His lust for gold overrides his conscience com- pletely. He has stopped at nothing in the mad rush for wealth — ^per- jury, the violation of law, the ruin of a friend, the destruction of the business morals of a continent, anything, anything, if it only puts money in his pocket. He saw by 1868, when he was 29 and already a rich refiner in Cleve- land, that native ability, thrift, and energy, however greater they may be, can never put an end to competition. Only some special privilege or advantage could make him the dictator and Crcesus he desired to be. He saw there was such an advantage if he could get it. It lay in transportation— in getting his carrying done cheaper than his neigh- bors. Under threats of loss of business, under promise of larger and more regular shipments, under chances of sharing in the profits, he got the railway managers in 1872 to give him secret rebates. He and his partners in the deal proposed to W. H. Vanderbilt, Thomas Scott, Jay (") Report U. S. Pacific Railroad Commission, 1887. Senate Ex. Doc. 51, p. 84. A good deal of it was spent to influence legislation in Congress and in California. See the Chapter on Railways in Politics. Railway Potentates. 233 Gould, General McClellan, and H. W. Clarke, that they should double the rates on oil, give the Rockefeller gang a rebate of 50% on all their own shipments and pay them in addition half the freight rates col- lected from their competitors. The railroads said, "It will give you a monopoly. It will ruin every oilman outside of your combination.*' Old Commodore Vanderbilt told "Billy," as he called his son, to let it alone. Even Tom Scott balked at it from the start. But the Rocke- feller conspirators said : "Sign these contracts, and -we shall control the business, then you will have but one party to deal with. Think of the ease in handling your freight ! Sign these contracts and we will divide the trade, thus saving you the wear and tear of securing your quota — preventing rate wars. And think of the profits." And the contracts were signed. Mr. Rockefeller then with rates one-half those charged his competitors, and his grip on the extra 100% they paid, told them he had advantages against which they could not stand, and advised them to sell at his price. They came down — ^21 out of 26 refiners in Cleveland sold to the gang. Some persons may see a difference between this sort of thing and a hold-up on the street by a masked man with a pistol in his hand, but we fail to perceive any moral distinction. Having grown to boundless wealth and power through atrocious railway favoritism, the Rockefeller gang no longer begged the railways for favors, but ordered them to do whatever the gang desired, and punished rebellion by inflicting enormous losses, and even bringing up the other railways to make war on the disobedient line. And today the gang dominates almost every road in the country.'" The Tweed Ring, the Erie Ring and the Rockefeller Gang, will go down in history together as more absolutely devoid of morality, more nearly chemically free from any trace of conscience, than any other aggregation of human molecules the analysis of which is on record; and the last is the most heartless, the least affected by friendship or pity, the most reckless of ruin to others, and the most hypocritical of the three. /. Ogden Armour. — J. Ogden Armour, the leading figure of the Beef Combine, is another railroad boss or ruler of the rulers in the railway world. He has large transportation interests, and by the power of the vast shipments he controls directly, and indirectly through his car-lines, he dominates most of the principal railroad systems of the country so far as his interests are concerned. He compels the railroads to give him exclusive contracts to return his cars at once at high speed without waiting for loads, to sidetrack their freight trains and even their pas- senger trains at times to let his freight have the right of way, and to make such rates as he dictates for the carriage of live-stock and dressed meats and other live-stock products, even to the point of carrying the (^) For a. full record of the Rockefeller iniquities, see Ida M. Tarbell's "His- tory of the Standard Oil Co." and her "Character Study of John D. Rockefeller" in McClure's for July and August, 1905. Also Woyci's "Wealth Against Com- monwealth." £34 T^^ Railways, the Trusts, and the People. packers' products below the cost of transportation, some of the railway witnesses declare."'* By his power over railroads he controls the destinies of individuals, cities and states. He decreed that Omaha and Kansas City should grow and that the cattle men of the west should not ship to Chicago but to his monopoly markets on the Missouri River. He decreed that the packing business should be done in the cities where the plants of the combine are located, and that rival packing houses in other cities and towns throughout the country should die or surrender to the trust. At his command the railroads have defied the orders of the Interstate Commission and the courts. The railroads, or some of them at least, do not wish to obey the commands of Armour and Rockefeller, but under present conditions they are compelled to do so or lose enormous masses of traffic. Our present railroad kings in direct control are men of high type, constructive, able, forceful, and as moral as the system under which they are doing business permits them to be. James J. Hill. — Take James J. Hill, for example, one of the greatest railroad men the world has ever seen, and note how strongly con- structive his work has been. He was born a farmer's boy in 1838. At 18 he entered a steamboat office in St. Paul. Eleven years later he became agent of the North Western Packet Company. By 1873 while still a steamboat man, he had accumulated about $100,000. Then he organized a syndicate to buy the St. Paul and Pacific Railroad which was bankrupt and six months behind in its pay roll. The Bank of Montreal let Hill have $500,000 to make the purchase. Wise men laughed at Hill and said the purchase would ruin him and his friends too; the road never had paid and never would. Yet this bankrupt line was the foundation of the Great Northern System — the road that has ne^er from the first year of its organization, failed to pay regular dividends. Nor is this all. This Great Northern System earned a large part of the money that made it possible to make a Hill line of the Chicago, Burlington & Quincy with its $200,000,000 of capital, and (i5») President Ripley of the Santa Fe, for example, gives the following figures: Dressed meats: Actual cost per car, $82; revenue, $42; deficit, per car, $40. Packing- house products: Cost per car, $85; revenue, $56; deficit, $29. He also asserts that cattle are now hauled at a loss. Other witnesses have disputed President Ripley's statements of cost. Whether or no beef is carried at a loss, it is certainly carried at very low rates compared with other commodities. (See Chapter on Railway Favoritism.) On the question of control President Ripley says: "The packing-house business to-day IS concentrated in so few hands that this fact, together with the compe- tition between the railroads, practically makes it possible for the latter to dictate rates for dressed beef and packing-house products." President Stickney of the Great Western Railroad says: "In fixing the rate on dressed meat we don't have very much to say. The packer generally makes the rate. He comes to you ^ and asks how much you charge for a certain shipment of dressed meats. The published tariff may be 23 cents a hundred, but he will not pay that. You say to him: "I'll carry your meat for 18 cents." He says, Oh, no, you won't. I won't pay that." Then you say: "Well, what will you pay for it? He then replies, "I can get it hauled for 16 cents." So you haul It for 16 cents a hundred." See the beef investigations of the Interstate Commission, 1890, 1901-2, 1904; the report of the U. S. Bureau of Commerce, and the recent cattle and beef cases tried at Chicago, Oct., 1905. Railway Potentates. 235 has given Mr. Hill and his friends a dominant interest in the Northern Pacific. These great results Mr. Hill has accomplished chiefly by a splendid development of efficiency, by railway publicity, or turning the light on every department so that the men on each division know ex- actly what they are doing, and what all the others are doing; by careful selection, training and good treatment of employees, and by planning rates and steamship lines to the Orient, etc., so as to fill his cars both ways, and give his lines big train loads on long hauls. The contrast in efficiency between his lines and the other Pacific railroads is one of the marvels of the railway world. When Hill declared in 1879 that he meant to put the Great Northern across the continent, men laughed again. No transcontinental line had ever been built without milking the Government. Hill was insane. But in 1893 "Hill's Folly" as the Great Northern was called, reached the Pacific Coast, the only line that ever got there without the aid of a dollar of public money or an acre of public land." It was the panic year and business was very dull, but Hill made good. Receivers came to the Santa Fe, receivers to the Union Pacific, receivers to the North- ern Pacific, but no receiver for "Hill's Folly." It had been a success from the start, and its master is said to be worth about $75,000,000, partly made in Wall Street by knowing what was going to happen, and partly by manipulation of stock, but largely by constructive work on a gigantic scale. Edward H. Harriman. — Harriman is another man of great construc- tive and organizing power. In the years of his reign Edward H. Har- riman is the youngest of our railway kings, but he is already one of the most powerful. He first came into view in 1897 in the purchase of the foreclosed Union Pacific, and now (1905) he dominates four of our seven transcontinental routes and has great influence in two others, including the Northern Pacific which holds the Burlington, and he also controls the Illinois Central and the Alton. He has rebuilt the Union Pacific and the Alton at enormous cost," and administers his railways with extraordinary skill and concentration of authority. "He has boards of directors, but they meet to approve the acts of the execu- tive committees. The executive committees meet to hear a t3Tpwritten statement dictated by the commander-in-chief, to signify their approval, draw their fees, and go their ways." '^ Mr. Hsrriman, like other railway magnates, not only owns and oper- ates large railroad interests, but controls in large degree the politics of our states. In the investigation of the big life insurance companies now in progress in New York, Mr. Ryan, the new owner of the Equit- ('") "Strategy of Great Roads," p. 74. (") The story of this rebuilding to level and improve the lines contains many passages of dramatic interest. Take for example the irascible tunnel that would not stay in the same position two days together. The mountain moved into the bore from the right side, and when remonstrated with, stole quietly in^ from the left; it descended on the tunnel with crushing force from above and rose irresistibly into it from below. But Harriman's engineers compelled the mountain to be quiet at last, and kept the hole in position by means of a heavy steel and concrete lining. ("Strategy of Great Railroads," p. 66.) (") C. M. Keys in "World's Work," Feb., 1905. 236 Relations of the Railroads to the Public. able Life, testified, December 13, 1905, that Mr. Harriman demanded a half share in the control of the Equitable, and that when this was refused, Harriman threatened Ryan with adverse legislative action and the use of his entire political influence and financial influence in oppo- sition to Ryan and his company. When Harriman came to the witness stand he did not deny Ryan's charge, but on the contrary affirmed his possession of "political influ- ence" of a high potency. The intensity of his claim to power is indi- cated in this passage from the testimony December isth. Mr. Hughes. "It has been charged that, through your relations with Mr. Odell you have political influence. What would you say to that?" Mr. Harriman. "Well, I should think Mr. Odell had political in- fluence because of his relations with me." Harriman's testimony also indicated that Governor Higgins and Speaker Nixon acted at Albany more or less as the agents of the rail- road emperor. Mr. Odell, former Governor of New York and one of the biggest political bosses in the country, objected to this classification next day over the telephone, and it is quite likely that there is an appreciable percentage of egotism in Harriman's testimony which may inflate the truth somewhat, but a man like Harriman does not make remarks of that sort without some foundation in fact, and there is little doubt that he had ability to make his threats of legislative and political opposition to Ryan and the Equitable if he were not let inside. When asked on the witness stand if he had taken measures to carry out his threats against Ryan, the owner of the Union Pacific said, "Not yet." A. J. Cassatt.—A. J. Cassatt is another splendid executive, with constructive and organizing genius of a high order. He is a civil engi- neer by education. Under his administration the Pennsylvania not only maintains the high reputation for good service and solid finance which it acquired under Thomson and Scott, but is making tremendous prog- ress on mechanical lines, the New York tunnel for example, and in co-ordinating and harmonizing railroad interests, the Baltimore & Ohio for example, and the coal roads, etc. President Cassatt was born in 1839. Yet at 66 he is president of seven companies and director in twenty-three, and is undoubtedly one of the ablest railroad men in the world. George Gould.— George Gould also is a man of great force and ability and a tremendous worker. As Spearman says, in speaking of another railroad president, "railroad presidents, not yet having formed a labor union, work 16 hours a day." Those who think a railroad presi- dent lives a life of luxurious ease should see this multi-millionaire railway king take off his coat and go through the piles of business that accumulate in his New York office, or note the bag of papers he takes home with him at night, or count the telegrams he throws to an operator every Monday morning for transmission to the various, head- quarters of his many railroad systems. He began railroad management Railway Potentates. 237 when he was 15, and he knows his railways from ties to traffic, and from tariff to treasury. No one can fail to admire these magnificent men, nor refuse to commend the splendid work they have done. But why should these men or any men have power of industrial life and death over individuals, corporations and communities — ^power to determine the distribution of wealth — power to sweep mil- lions made by others into their pockets, in addition to what they fairly earn — power to fasten monopoly after monopoly on the people? Why should any men have power to levy taxes on the nation for private aggrandizement? Why should any man be allowed to monopolize public highways and exercise sovereign powers for their own profit? Why should railroad managers work under a system that subjects them to duress and dominance b)' conscienceless trust magnates like those of the Rockefeller ring? Why should genius work under condi- tions that naturally impel it to organize lobbies, pervert legis- latures and control legislation in private interest, or to wink at these things when done by subordinates ? I have no prejudice in relation to railroad kings, I think, except a prejudice in their favor. Some of them have rendered me great service in sup- plying data needed for this book. And they are all gentlemen of most attractive personality. But any one who is familiar with the facts recited in preceding chapters on Railways in Politics, Railway Favoritism, Gambling, Watered Stock, Rail- road Wars, etc., must realize that railroad managers are not angels. Our railroad potentates, fine as they are in many ways, are exerting powers and following policies that tend to under- mine republican institutions, justice, liberty and equality of opportunity. But the chief censure does not lie with them. The fact that so many fine men commit or permit gross injus- tice in rates, corrupt the fountains of government, or allow them to be corrupted by the interests under their control, and defy the law, — Federal and State, constitutional, statute and common, — shows that the system under which they are doing business is wrong. The chief fault that is to be found with our railroad man- agers now is the resistance they ofifer to a change in the system which would make it easier for them to act in harmony with the ten commandments and the principles of ethics. Stickney, 238 The Railways, the Trusts, and the People. himself a railroad potentate of no small power, says: "The enormous power which discrimination" in the matter of rates gives to railway managers in respect to the private business of individuals, the power lodged in the hands of one man, the manager, say of 5,000 miles of railway, to decree which out of a thousand cities and villages located on his lines should prosper, and which should not, which individuals out of ten thousand merchants doing business in those cities and villages should make a profit or a loss, such enormous power over the fortunes of so many should never be lodged in the hands of any human being; and yet, many of the best men engaged in railway management have insisted that to deprive them of this autocratic power was tantamount to confiscation of the prop- erty which they were managing." Railroad managers now as a rule profess to be opposed to preferences in rates, but such preferences continue to exist and the managers resent any effort to establish public inspection of their business and accounts or to secure effective public control over rate-making. History strongly indicates that the railroads left to themselves will not get rid of unjust discrimination, to say nothing of unearned increment, stock obliquities, and politi- cal improprieties. Some railway authorities declare that consolidation is the remedy. But we have seen that consolidation can suppress only one of the six great classes of discrimination. It does not prevent stock jobbery and is usually accompanied by huge inflation of capital. And it can hardly be expected to diminish the transportation tax, or the deflecting pressure of railroad interests upon the Government. To enlarge the dominions of a potentate is not the way to decrease his power or hold his objectionable tendencies in check. An eminent railway lawyer and director says : "If the handful of men who control the vast system of transportation in this country should come together (19) In "The Future of the Railroad Problem," "Compendium of Transporta- tion Theories," 1893, Stickney says: "If paternalism in railway management is to continue and increase, if these companies keep on discriminating in favor of certain towns and business houses, all the business of the country sooner or later will fall into the hands of the few. ♦ ♦ ♦ « ^hen those who are not Presidents or General Managers or Directors will be like the two urchins who were only stock- holders in a Joint Stock Company consisting of three, who had each contributed a cent towards its capital, which was invested in a cigar which the President smoked. As the little fellows saw the cigar disappearing they began to clamor for are only stockholders; I suppose you may be allowed to spit. Railway Potentates. 239 with the intention of establishing a monopoly, it would be estab- lished, all the vague and vehement opposition, however wide- spread, notwithstanding. Yet the establishment of such a mon- opoly, however advantageous it might be for a time, would in the end not fail to undermine the constitution and the entire po- litical system of the country. More than that, the monopolist would become, in fact, the emperor of the United States. He would own president, legislature, and courts, and could be- queath his monarchy as private property to his eldest son.'"° The moralization of the managers is suggested as a cure. But that means the moralization of the people; for the rail- way managers are quite as good as the people in general, and act on precisely the same principles that are acted upon by other busisness men holding large interests in manufacturing, commerce, mining, gas, electric light, telegraphs, telephones, etc. The need of moralization is great. The centuries of prog- ress have not produced a symmetrical development. Our eth- ical advance has been insignificant compared with our material progress. And this is largely due to the fact that our insti- tutions put a premium on wrong doing of certain kinds, and so perpetuate and develop imperfect character on these lines. Wealth and power are awarded often to cunning and aggres- sion, wherefor the growth of aggression and cunning is favored. Our laws and institutions, especially our methods of creating and distributing wealth, do not secure equality of opportunity nor due apportionment of reward to merit, but accord special privileges to the few, reward unscrupulous ability with enor- mous success, and impel the good men to depart from the paths of justice and good citizenship in order to protect and advance their property interests. Self interest and the system lead railway managers to claim the same freedom in making charges, etc., that they would have in managing a grocery store. But the difference is very great. If a store does not deal fairly, it is easy to open another, either on the capitalis- tic or cooperative plan, but if the railroads deal unfairly, the difficulties of establishing another system are so great as to ren- der it practically impossible. It would take billions to dupli- cate the railroads. The conceivability of another system is no (™) I. I/. Rice, "North American Review," Feb., 1882, pp. 145-6. 240 Relations of the Railroads to the Public. protection against overcharges nor guarantee of fair treatment by existing railroads. They are safeguarded not only by the enormous cost of duplication, but by their grip on legislative bodies and commissions, and by the certainty that they would make ruinous war upon invaders. No city or town is at the mercy of its stores, but all our cities and towns are at the mercy of the railroads. The whole nation has a vital interest in the railways. The courts agree in declaring that they are public highways, and that they are exercising public functions. Yet railway managers practically ignore their relation of trust to the public, and regard only their trust to the companies, sub- ordinating the boundless industrial, political, social and moral interests of 80,000,000 people to the mere financial interests of a few stockholders. Our transportation potentates regard the railways, not as public highways to be managed in the pub- lic interest, with a reasonable profit to the capital and manage- ment, but as private property to be handled arbitrarily for the profit of the stockholders and managers regardless of the public interest except so far as it coincides with the financial interest of the holders. This policy must be reversed. The public interest must be made to dominate either by a moral development, subordinating self interest to the public good, or by a change in the system that will control the self interest of managers or bring it into better harmony with the public interest. Furthermore, a change of system is not only the simplest and most certain method of stopping the evils in question,"^ but it is the swiftest and surest and probably the only practical method (^) Railway advocates say the best plan is to let things alone; the evils of the railway world will cure themselves. Chas. Francis Adams says; *'It is true that evils work their own cure, but the cure for the evils of Roman civilization was worked out through ten centuries of barbarism. It remains to be seen whether this people retains that moral vigor which can alone awaken a sleeping public opinion to healthy and persistent activity, or whether to us also will apply these words of the latest and best historian of the Roman republic: 'What Demosthenes said of his Athenians was justly applied to the Romans of this period; that people were very zealous for action so long as they stood 'round the platform and listened to proposals of reform; but when they went home, no one thought further of what he had heard in the market place.' " There are excellent reasons for believing that our people do retain the normal vigor necessary to reform great evils. Chicago has recently risen against her transportation potentates and decided by an overwhelming vote to cut them loose from their thrones as soon as respectable arrangements can be made for the amputation; and Philadelphia, supposed to be the most apathetic city in the universe, has risen in wild revolt against her industrio-political masters, and with the help of an able mayor willing to do the square thing whenever the people were ready to stand by him in sufficient strength to make his movements success- ful, the corrupt bosses and ballot stuffers of Philadelphia, a far worse set of mcsnopolists than our railway potentates, have been completely put to rout. Railway Potentates. 241 of transforming character and securing the moral development desired, by removing the external stimulus to wrong-doing and molding the nature and habits of thought into fitness with the new conditions. Character and institutions react upon each other. Better men create better institutions, and better institutions create better men. You may secure order by making men so good they will resist provocation or temptation to quarrel, or by es- tablishing adequate means of punishing them if they fight, or by removing the external causes of friction. You may abolish gambling by developing character that will resist its allure- ments, or by abolishing lotteries, gambling dens, etc. So you may secure industrial justice by moralizing men to the point where they will refuse to capture thousands or millions from others by fraud and aggression, or you can do it by establishing laws and institutions that will link injustice with industrial defeat and award the fullest success to ability plus fair deal- ing and good citizenship. Matters should be so arranged that a man of ability who ex- erts his powers in ways that harmonize entirely with the pub- lic good, shall make more money and receive more benefit in every way than a man who exerts his powers in ways that are wholly or partially contrary to the public interest. No one could accumulate a hundred millions under such conditions, and fewer would be able to leave their children in possession of large fortunes than can do so now, but many more would be able to acquire a competence, and the force of industrial prem- iums would go to encourage the growth of virtue as well as ability. The core of discontent today not only in respect to railways but throughout our social life, is the revolt against unfair priv- ilege and the use of power for unjust private advantage."' We have had to declare political power to be a public trust in order to protect ourselves from political oppression. And to (^) See "Social Unrest," bj; John Graham Brooks, p. 135. Henry C. Adams, Professor of Economics in Michigan University and railroad expert for the United States Interstate Commerce Commission, says: "The laborer of to-day, as compared to the non-laboring classes, holds a relatively inferior position to that maintained in former times. The laborer interprets this to mean that the principle of distribu- tion which modern society has adopted is unfair to him." Thorold Rogers, former Oxford economist and a politician of large experience, says: "In a vague way the working people are under the impression that the greater part of the misery which they see is the direct product of the laws, enacted and maintaineid in the interest of particular classes. And on the whole they are in the right." ( 242 The Railways, the Trusts, and the People. make that protection effective and provide also against indus- trial despotism, injustice and oppression, we may have to go one step further and declare industrial power also to be a pub- lic trust. Chapter XIX. THE FAILURE OE CONTROL, HOW FAR AND WHY. For 30 years and more we have had vigorous efforts at state regulation of railroads, and for nearly 20 years the national government has been trying to prevent railroad abuses. What have been the results? Has unjust discrimination been eliminated? Has the inflation of capital been prevented? Have unlawful combinations and consolidations ceased? Has the railroad lobby been abolished, or railway bribery and cor- ruption done away with? Have railroads been made to obey the law? Has railroad travel been rendered reasonably safe? Has the equality and justice the law aims to secure been estab- lished ? Nothing of the kind. Every one who knows anything about our railroad history realizes that altho regulation, state and national, has accomplished some good, the worst evils of our railway system remain practically untouched, and its most serious abuses are substantially unchecked. All but four of our states have passed important regulative laws affecting railways; 31 states regulate rates; in 21 of these states local rates are absolutely under the control of the com- missions, either by means of power to fix the rates themslves or through power to prescribe maximum rates." At least 35 of our states have established railroad commissions, and 31 of these states, I believe, now have such commissions. A few states have abandoned them, and some states have discon- tinued their commissions and afterwards re-established them. Of the existing commissions, 21 are classed as "strong," which means that they have the power to regulate rates. "Weak" commissions in some cases have a limited power in respect to rates, as, for example, in Massachusetts, where the commis- sion may fix milk rates. (1) Sen. Com. 1905, pp. 1908-9. See also I. C. C. Rep. 1903, pp. 117, 118. The Failure of Control, How Far and Why. 243 What have these commissions accompHshed ? I have studied their workings in more than 20 states, and have collected facts and impressions from men of various classes and of the greatest weight in the various communities. Here are a few sample expressions from men whose opinions command respect throughout the country. The first is from Georgia. "The commissioners draw their salary and their breath. They are, as a rule, the servile tools of the railroad corporations, and have been of no service whatever to the people. They have allowed the grossest extortion to be practiced against the peach growers, the melon growers, lumber dealers and others, without lifting a hand in their defence. Nowhere in Middle and Eastern Georgia do they compel the corporations to give decent accommodations to pas- sengers. . . . Strangers are amazed at the abuses we endure. The railroad commission amounts to nothing more than a pretence, a sham, an imposition on the tax payers and an insidious prop to the present system of corporative robbery." The next is from Colorado. "We never had but one Railroad Com- missioner, and that was under the Law of 1885. He prepared and filed one report, but no action of any kind was ever taken by him for the benefit of the people, nor anything done that the people ever heard of excepting his free rides around the state on the several railroads. . . . The result of his administration was so dismal and disappoint- ing that no future appropriation was made to pay the salary or ex- penses of the office. . . . This condition of aflfairs continued down to 1893, when the act referred to was wholly repealed without substi- tution. . . . We have never had a railroad commission act in the state since. In fact we have no railroad legislation in the state to pro- tect communities, shippers, or passengers, even in the mildest form. I attribute this result wholly to the railroad lobby, which has always been the strongest of the lobbies that biennially haunt the legislative halls. . . . The railroad an'd corporation committees of both House and Senate during all this period have invariably been super-service- able to the interests of the railroads." Going to Missouri we find that the railroads practically always had their own men on the commission up to 1904, and of course nothing was done to check railway abuses or interfere with their control of the state and its government. They had their assessments and taxes diminished while the people's taxes were increased. They were satis- fied to pay only about 1-3 of the taxes they should have paid. They have even been accused of controlling the Supreme Court." (2) A conductor who was injured in an accident caused by a defective rail sued the Missouri Pacific for damages. The railroad fought him three times over all the way up to the Supreme Court. In the lower court he got a verdict for $15,000 the first time and $25,000 the second and third times. But when the case came up the last time the railway had captured the Supreme Court, and it re- versed the judgment of the lower court. One of the leading editors of the state accused the railway of corrupting the Supreme Court and the court fined him $500 for contempt. The people raised his fine by popular subscription. 244 Relations of the Railroads to the Public. In another great state, the name of which for special reasons I may not give at present, "a' law was passed giving the railroad commission power to establish reasonable freight and passenger rates. The com- mission decided that on the main lines freight rates should be reduced 17% and passenger rales lowered from 4 cents to 3 cents a mile. The railroads got a restraining order from the Federal District Court pro- hibiting the publication of this schedule. After more than S years of litigation and two appeals to the United States Supreme Court, the case was finally decided at the polls, when in 1900 the friends of the railroads carried the election. The new commission changed attorneys, and by agreement with the railroads the cases were dismissed upon agreement that the railroads would put the passenger rate at 3 cents a mile. Since that time the railroads have dominated the state and nomi- nated and elected the railroad commissioners. About 2/3 of the State Senate and House are the tools of the railroads. The railways are in supreme command in the state, and both the United States Senators and the Congressmen are 'right' for the railways." In Illinois "the railroads have had a strong hand in the selection of the commissioners, and they have been for the most part satisfactory to the railway interests. They have taken the railroad view; have not really tried to defend the people's rights ; have not checked the worst abuses — discrimination, excessive rates, inflation of capital, etc. — have in fact accomplished practically nothing. The influence of the railway lobby has not diminished. The great majority of the members of most legislatures are bound in some way to the railway interest, and the railway committees of House and Senate are distinctly of the railway color." Wisconsin, after many years of railroad rule and evasion of law, has at last, through the efforts of LaFollette, a Commission of high ability and undoubted loyalty to the people's interests. But it has been in office only a few months and we do not know yet what the outcome of the new regime will be. The following synopsis states the facts and views expressed to me by a number of the leading men of Nebraska : "There is no state railroad commission in Nebraska at the present time, the law creating the commission having been declared unconstitutional about four years ago, after the commission had served very conveniently as a buffer for the railroads for a period of more than a dozen years. The per- sonnel of Nebraska's railroad commissions was distinctly railroad. The commissions never really tried to give relief to the public, except when the railroads consented to immaterial concessions to allay public senti- ment. When the board on one or two occasions, forced by pressure of public opinion, undertook to act without the consent of the rail- roads, the latter simply ignored the board's orders, or tied them up in the courts'. Railroad lobbying and influence in the legislature was not diminished by the commission. While the commission was in ex- istence its only result was to give the railroads three additional lobby- ists with salaries paid out of the state treasury. The lobby under- The Failure of Control, How Far and Why. 245 takes and usually succeeds in organizing the two houses and making up the committees in which it is interested. Very seldom, certainly not within our recollection, which extends back many years, has the lobby failed to control the organization in this work. It would be difficult to say just what proportion of the legislature consists of rail- ■ road attorneys, or men interested in the railroad view. On a rough estimate we should say that fully three-fourths are directly or indirectly attached to railroad strings." In Oregon "the people were almost unanimously of opinion that the commission (which ceased to exist in 1899) was of no value to them. But it is believed that the initiative and referendum recently adopted may offer an effective means of checking railway evils, so far as they can be reached by state action." Montana has no railway commission. "The lobbying influence mostly comes from big mining corporations, but they are inseparably con- nected with the railroads. And these allied monopolies are always perniciously active in politics from the primaries to the executive." In Texas, altho the railroads have a strong hold on the party in power and have sometimes succeeded in electing their men to the railroad commission, yet on the whole the commission has earnestly endeavored to do what it could to guard the rights of the public. J. H. Reagan, who organized the commission, was a strong defender of the people's rights, and O. B. Colquit has recently rendered some valuable service, making a trip to the office of the Wells-Fargo Ex- press Company of San Francisco, and forcing the officials to give him access to their books, so that he could determine whether or not their express charges were exorbitant. They declined at first to do it, but he showed them how by the Texas Law he would be able to close up their business in Texas if they refused him. He gave them twenty- four hours to decide ; in less than ten hours he was notified that he could have access to their books. The result was an order for a material reduction (10 per cent) in express rates in Texas to take effect October S, 1903. But, as stated on page 27 of the Commission's report for 1903, the express companies secured an injunction from the Federal Circuit Court. In December, 1904, the matter was still pending in the courts. By injunction, litigation and delay, and resort to every technicality in every court all the way up to the United States Supreme Court, the companies seek to paralyze every important effort of the commissions to protect the rights of the people. The Commission declares that the express companies are violating the laws of the state and also that their exclusive contracts with the railways are in violation of the Federal anti-trust law, and has asked the Attorney General to bring suits for cancellation of the permits of the Wells-Fargo Company and the Pacific Express Company to do business in the state, and for injunctions against the United States Express and the American Express Company, from doing business in the state contrary to its laws. The two latter "claim immunity from the laws of this state applying to corporations," alleging that they are 246 The Railway's, the Trusts, and the People. join-stock associations (formed under the laws of New York) and have all the rights in this state which are guaranteed under the Federal Con- stitution to citizens of other states, and that therefore the law regulating corporations in this state does not affect their right to do business as they please, and in defiance of the statutes intended for their regulation and control. The commission has a right to fix rates and has frequently exer- cised the power, but comparatively little can be accomplished by such means in this or any other state, because the great mass of railway rates are interstate rates beyond the reach of any state commission. The railroads not only hold the bulk of their rate-making power beyond the control of state commissions, but they use their power of fixing interstate rates to punish action by state boards which is obnoxious to them. Vigorous examples of such retaliation have occurred in Georgia, Texas and other states. Nevertheless, the Texas board has done some good work.* Its character and success appears to have been largely due to the great interest that organized labor has taken in the election of the commissioners. Indiana has only just enacted a regulative act. "Since 1892 the legislature, as a rule, has been practically controlled by the bankers and transportation companies." Michigan has a railroad commissioner. The following analysis states the essence of the situation as I found it near the close of 1904. "The commissioner is the boss of the machine that governs Michigan and shapes its policies. The machine is controlled by the railroads and their public utility corporations. After the method of assessing taxes was changed^ under the Pingree regime, the state authorities accepted a payment of taxes from the railroads about $4,000,000 less than the new law called for. The attorney general sued the railroads for the balance. At the trial the railroads offered in evidence sworn affidavits from two of the tax commissioners favorable to the railroad's contention. The attorney general demanded of the Governor that the tax commissioners be removed from office. The tax commissioners said they signed the affidavits at the suggestion of the commissioner of railroads. The Governor did not act. It was openly charged that the tax commis- sioners were appointed by the Governor on the nomination of the railroad interests. It has not been charged that the railroad commis- sioner has ever tried to defend the people's rights. The railroad inter- ests nominate and elect a sufficient number of state senators to guard their interests. And of railway committees the majority are always pro-railway." Even railroad presidents in Michigan declare that the railroads have for years controlled the nominations and owned the government of the state.° (•) Rep. Tex. Ry. Comssn., 1903, p. 27. The Commission reports that 45,320 free passes, 13,566 of them being annual passes, were issued in 1903 to persona other than employees (public officials, preachers, favored shippers, etc.), and in 1904 to the same classes of beneficiaries 39,34i free passes were issued, 11,097 of them annual. (Report for 1903, p. 39; and 1904, p. 415.) (=) See confession of an ex-railroad president, Detroit Tribune, October 27, 1904. The Failure of Control, How Far and Why. 247 Pennsylvania is without the luxury of a railroad commission, unless we may consider the whole state administration, legislative, judicial, and executive as comprising such a body. "As a matter of fact the state government is merely an adjunct of the Pennsylvania Railroad Company. That company selects United States senators and generally the candidates of both parties whenever it sees fit to do so. Ordinarily no bill can even receive casual attention in the legislature against which the railroad companies are arrayed." For New York the following statement expresses the concensus of opinion gathered from a number of the highest authorities in the state. "The railroads influence the selection of commissioners who are usually satisfactory to railway interests and impregnated with railway views. The commissioners, as a rule, have made no real effort to stop the most serious railroad abuses, and have accomplished prac- tically nothing in relation to the worst evils of the system. The railway lobby and railway influence are paramount at Albany. And in respect to railroad interests the legislature is an annex to the rail- road offices in New York." Rhode Island has a railroad commissioner, but "he is a politician entirely satisfactory to the railways; has not accomplished anything important ; nor even attempted to check serious abuses ; in fact the railroads own the state ; they own the Boss and he owns the govern- ment." Massachusetts is supposed to have the best railroad commission in existence, and in many ways this is true. In the early days, under the lead of Charles Francis Adams, excellent work was done along the line of acquainting the people with the facts in regard to the railways of the United States and other countries. And in recent years, under the lead of Commissioner Jackson, the commission has done much to secure better conditions so far as their power and the circumstances of the case permit. But no one state commission can reach the main causes of our railroad evils. Even if state commissions throughout the union should unite, they could not touch interstate commerce, which constitutes the great bulk of railway business, and therefore could do little toward abolishing the grievous discriminations and extortions that make our railroad system a by-word throughout the civilized world. It must not be understood that the Massachusetts commission, excellent as it is in many ways, has done all that might be reasonably expected of it. For example in the legislative investigation of the Boston and Albany road in 1900, when it was charged that various shippers were receiving discounts of 10 to 73 percent from the pub- lished rates, the commission was asked by the legislature for informa- tion on the subject. They handed in a report a Kttle later, and, on being questioned as to the source of their information, the commission stated that as they did not know anything about the subject they turned the question over to the railroad, took the report prepared by one of its officials (presumably the attorney trying the case before the 248 Relations of the Railroads to the Public. legislature) and presented it to the legislature as the report of the commission.* If the commission did not know anything about so vital a matter as these vicious and unlawful discriminations which were charged and substantially admitted, and even when asked by the legislature for information, took no steps to ascertain for themselves the real facts in the case, but relied entirely on whatever statements the railroads might see fit to make, and if the Massachusetts com- mission is the best example of this method of control that we possess, as leading authorities declare, then I ask you to consider carefully the question: What have we to hope for from the state commission as a means of controlling our giant railroad systems, securing transportation justice, and safe-guarding all the interests of the people in their rela- tions with the railways? A further illustration of the tendency of the Commission to leave the railways alone in matters of large importance to them is to be found in the recent refusal of the Commission to grant even a hearing to the citizens of Jamaica Plain, one of the best residence districts of Boston, on the question of requiring the Elevated Railroad to put a station at "Green Street," a point where it would accommodate 14,000 people, and where it is needed in order to bring the distances between stations on the Jamaica Plain section of the road down to the average on other outlying sections. Nearly 2,000 business and professional men and other important citizens, including some of the best known men in Boston, signed the petition for the hearing, but the Commission would not grant it, saying it would be time enough to consider the question of the Green Street station after the L extension is built (with the stations where the L company wants them — not where the people want them). The Citizens' Association and the petitioners had to go to the Legislature to get a hearing, which has just been given them. They made a very strong case, showing that in a shorter distance through a similar residence district, the N. Y., N. H. & Hartford railroad has S stations against 2 stations on the Elevated. To refuse even to hear the case of a fair-sized city full of people is regarded by the Jamaica Plain folks as pretty near the limit. In earlier years, when Charles Francis Adams was a member of the Board, the Massachusetts Commission displayed great energy in its efforts to secure reduction of fares, due regard for safety, direct operation of the express service by the railways, and even advocated state purchase and operation of a part of railroads in order to adopt the Belgian system of extremely low rates on raw materials, etc. But in recent reports the subjects of discussion are the locomotive whistle, women and children in smoking cars, colors in sign signals, grade crossings, safety coupling devices, statistics showing how rates have fallen with the general fall of prices, etc., etc., with very little attention to most of the vital topics that occupied the Commission in early years, and an entire absence of the earnest effort to exert a really effective (*) See Ind. Com. IX., p. 129, and The Outlook for April 7, 1900, p. 754. See also Outlook, April 28, 1900, p. 935; March 17, 1900, p. 626; July 9, 1904, pp. 583-4. The Failure of Control, How Far and Why. 249 control over the railways in the interest of the pubhc, which formed so notable a characteristic of the early reports and did so much to establish the high reputation the Massachusetts Commission has enjoyed. The history of railroad regulation in this country, both Fed- eral and State, is one long record of failure at the vital points. In the early seventies the indignation of the people at the out- rageous favoritisms and extortions of the railroads reached the explosive point in the Middle West, and a number of the Granger states elected farmer legislatures and passed drastic laws for the prevention of discrimination and the regulation of rates. Illinois headed the procession with a declaration con- cerning state control of rates at the Constitutional Convention of 1870, on the basis of which a maximum rate law was passed in 1 871. Judge Lawrence declared this law unconstitutional, and immediately afterward the judge failed of re-election solely on this ground, and a new law was passed in 1873 establishing a commission to fix reasonable rates. From 1872 to 1876 Wisconsin, Minnesota, Iowa, Nebraska, Kansas, and other states passed "Granger laws" fixing maximum rates and forbidding discriminations. In 1877 the Supreme Court of the United States sustained the constitutionality of the Granger laws, but neither the rates prescribed by the legislatures nor those fixed by the commis- sions which grew out of the Granger agitation, accomplished the purpose in view. The railroads continued to discriminate between persons and places in defiance of law, and paralyzed the Granger efforts to fix rates by cutting down facilities, stopping construction, raising rates that had been moderate, up to the full maximum permitted by law, and otherwise doing all in their power to disgust the people with railway rates, services and conditions, and pointing to the Granger laws as the cause of the trouble when complaints were made. At the same time that they made a systematic effort to disgust the people with the results of the Granger movement, the railroads made an equally determined effort to regain control of the legislatures and the governments. They packed caucuses and conventions, fixed nominations, controlled elections, and cap- tured the "representatives of the people." And so the Granger laws were killed and the commissions rendered innocuous." (°) See President Hadley's "Railroad Transportation," 130-5; also his article in Scribner's for October, 1888. Any one who wishes to understand the details of the Granger movement should 250 The Railways, the Trusts, and the People. How small an impression state regulation was able to make upon railway evils, even when the legislatures were overwhelm- ingly against the roads, may be judged by the condition of things in 1885-6, when the Cullom Committee of the United States Senate investigated the railways and made a report rec- ommending Federal regulation. The evils of the railroad system as expressed in the report of the committee were as follows : "i. That local rates are unreasonably high, compared with through rates. "2. That both local and through rates are unreasonably high at non-competing points. "3. That rates are established without apparent regard to the actual cost of the service performed, and are based largely on what the traffic will bear. "4. That unjustifiable discriminations are constantly made between individuals in the rates charged for like service under similar circum- stances. "S. That improper discriminations are made between articles of freight and branches of business of a like character, and between different quantities of the same class of freight. "6. That unreasonable discriminations are made between localities similarly situated. "7. That the effect of the prevailing policy of railroad management is, by an elaborate system of secret special rates, rebates, drawbacks, and concessions, to foster monopoly, to enrich favored shippers, and to prevent free competition in many lines of trade in which the item of transportation is an important factor. "8. That such favoritism and secrecy introduce an element of uncer- tainty into legitimate business that greatly retards the development of our industries and commerce. "9. That the secret cutting of rates and the sudden fluctuations that constantly take place are demoralizing to all business except that of a purely speculative character, and frequently occasion great injustice and heavy losses. "10. The railroads are able by various devices to avoid their respon- sibility as carriers, especially on shipments over more than one road, or from one state to another, and that shippers find great difficulty in recovering damages for the loss of property, or for injury thereto. "11. That railroads refuse to be bound by their own contracts, and arbitrarily collect large sums in the shape of overcharges in addition to the rates agreed upon at the time of shipment. "12. That railroads often refuse to recognize or be responsible for the acts of dishonest agents acting under their authority. read Stickney, I^arrabee, and I^ewis, whose vivid descriptions of the movement and its effects in Minnesota and Iowa afford an excellent idea of the struggle along the whole line. The Failure of Control, How Far and Why. 251 "13, That the common law fails to afford a remedy for such griev- ances, and that in case of dispute the shipper is compelled to submit to the decision of the railroad manager or pool commissioner. "14. That the differences in the classifications in use in various parts of the country, and sometimes for shipments over the same roads in different directions, are a fruitful source of misunderstandings, and are often made a means of extortion. "15. That a privileged class is created by the granting of passes, and that the cost of the passenger service is largely increased by the extent of this abuse. "16. That the capitalization and bonded indebtedness of the roads largely exceed the actual cost of their construction or their present value, and that unreasonable rates are charged in the effort to pay dividends on watered stock and interest on bonds improperly issued. "17. That undue advantages have been afforded to business enter- prises in which railroad officials are interested. "18. That the management of the railroad business is extravagant and wasteful, and that a needless tax is imposed upon the shipping and traveling public by the unnecessary expenditure of large sums in the maintenance of a costly force of agents engaged in a reckless strife for competitive business." This indictment of 1886-7 is still true today; not a single count can be omitted. The result of this report was the passage of the Interstate Commerce Act in 1887 to prevent discrimination and extortion. Stickney says the result for the first four years was the fining of one poor freight agent who happened to get caught. After a decade of Federal regulation a famous railroad president said that "If all who have offended against the law were convicted, there would not be jails enough in the United States to hold them." The Interstate Commerce Commission made the following statement in their report for 1898, and reiterated it in the report for 1899:' "The situation has become intolerable. Tariffs are disregarded, dis- criminations constantly occur, and shippers are all the while in doubt as to the rates secured by their competitors. . . . Enormous sums are spent in purchasing business, and secret rates are accorded far below the standard of published charges. The general public gets little benefit from these reductions, for concessions are mainly confined to the heavier shippers. All this augments the advantages of large capital, and tends to the injury and often to the ruin of small dealers. These are not only matters of gravest consequence to the business welfare of the country, but they concern in no less degree the higher interests (°) See pp. 5 and 6, Report of 1898, and 6-8, 1899. 252 Relations of the Railroads to the Public. of public morality. ... It is often said, in substance, that if any carrier gives discriminating or preferential rates it is the duty of the commission to prevent or punish such misconduct. Unfortunately, the commission is powerless to perform any such duty." The commission then states that even criminal prosecutions have failed to secure the enforcement of the law. And in regard to the regulation of charges, it says : "Any railroad company can charge for its services whatever it pleases, and as much as it pleases, without any real power in this commission or any other tribunal or court to limit the amount of such charge." In 1903 the Elkins Act was passed to supplement and amend the Act of 1887, but this has had Httle if any more effect than the former law. A railroad executive writing in The Outlook for July i, 1905, says: "Notwithstanding the violation of the Interstate Commerce Law has been open and notorious, and indictments have been numerous and prosecutions not infrequent, no railroad officer has ever been incar- cerated. For my own part, the liability for such disobedience has never in any wise deterred my purpose to secure my company's share of tonnage by whatever means competitors employed. I have the repu- tation of a law-abiding citizen in my home city — am well known — of good personal character. I flatter myself that a jury could not be found which would commit me as a felon because I directed the pay- ment of a rebate to a shipper — a transaction which did not inure to my financial advantage." The recent investigations in Wisconsin on the initiative of Governor La Follette, and those carried on by the Interstate Commission in the last three years abundantly prove that dis- crimination and other railway evils still flourish vigorously in this country. And as I write, the dominant issue before the people and the principal business of Congress at this session is the passage of a law to do what all former laws have failed to accomplish, namely, to establish the dominance of ptiblic interest over the public highways, to enable the government to control the railroads so far as necessary to secure just rates and impartial treatment of shippers. As we have seen in Chapter III, there are more than 60 different methods of discrimination now in use upon our rail- ways. Instances of violation not only of the Federal laws against discrimination, but also of the statutes against com- bination, inflation of capital, excessive rates, political malprac- tice, etc., occur throughout the preceding pages. It is hardly The Failure of Control, How Far and Why, 253 necessary to deal here with further illustrations/ Let us rather direct our attention to the causes which have brought about the failure of State and Federal regulation at the vital points. Various reasons have been assigned for the failure of regula- tive treasures. The Interstate Commission says : ( i ) That it has not had sufficient authority; that it ought to have the power to prescribe a reasonable rate or regulation in place of one found upon complaint and hearing to be unreasonable or unjust; that terminal railways,, private cars, and express com- panies should be brought within their jurisdiction, and that full power should be given for inspection of railway business and accounts at all times; (2) that very many discriminations are secret; that railway presidents and managers will not tell the truth even on the witness stand ;^ that records and mem- oranda are suppressed and even destroyed in order to keep the facts from coming to light; (3) that shippers who receive concessions are equally determined to conceal the facts, while shippers who are not favored either do not know the facts about discrimination with sufficient definiteness to base a suit for the enforcement of the law, or else in very many cases they are afraid to make complaint against the railroads for fear C) The reader who desires examijles of failure of control or railway disre- gard of law in addition to the cases cited in this volume, may find almost unlim- ited materials in the reports, investigations, and decisions of the Interstate Com- merce Commission, the proceedings of the United States Industrial Commission, the hearings before the Senate Committee 1905, and the writings of Hudson, Had- ley, Larrabee, Lewis, Adams, Stickney, Cowles, Lloyd, Tarbell, Steffens, etc. If the reader wants to see how easily the railways can escape the control of the law and the Interstate Commission, let him read the Eau Claire Case decided in 1892, and the admirable description of it by H. T. Newcomb in the Popular Science Monthly, October, 1897, pp- 815, 816. On page 66y of McClure's for October, 1904, Miss Tarbell shows how the Standard Oil Trust, through its great influence in the stock market and enormous control of industry, is able to compel the railroads to obey its orders instead of obeying the law or the orders of Con- gress or the Interstate Commission. See also the "Heart of the Railroad Prob- lem," Little, Brown & Co., 1906. (^) See statement of Commissioner Prouty in Chapter III. At a hearing before the House Committee on Interstate and Foreign Commerce, January 25, 1905, Commissioner Clements said: "Only last year, when we were investigating, upon complaint, the anthracite coal roads in New York, a general objection was made again to the production of books and papers, and we had to stop proceedings and go into court, and when the case was apijealed to the Su- preme Court, tho the Circuit Court decided against the Commission, the Supreme Court fully upheld the position taken by the Commission and ordered the pro- duction of the documentary evidence. "Last fall in Chicago, when we were investigating the private car line prac- tices under a general inquirer, a witness who represented a car company was asked whether his company paid rebates or not. He refused, under advice of his lawyer, to answer. We had to suspend that branch of the case and institute a proceeding to compel him to testify. That proceeding is pending now in the Circuit Court. "The Commission has been steadily confronted at every step with difficulties and constitutional objections and refusals to answer, necessitating resort to courts and appeals to the highest court in the country to decide these questions. And yet the gentlemen under whose management these abuses have been committed are the gentlemen who come here and tell you that the Commission is not to be trusted because it has not enforced the law against them." 254 The Railways, the Trusts, and the People. of retaliation, which will make conditions worse for them than they are now; and (4) that even when the commission has suc- ceeded in ascertaining the facts and has issued orders intended to correct abuses, the railways in many cases have refused to obey and tied the thing up in the courts for years. In pursuance of vigorous demands in President Roosevelt's messages, legislation is now pending in Congress which it is hoped may remove the first and last difficulties just named, but nothing has been devised to meet the second and third difficuhies emphasized by the Commission. The railroads say that the Commission has made a great many mistakes; that state regulation of rates has failed be- cause it has been too inelastic, and in some cases altogether too severe, depriving the roads of any proper remuneration; that they have as much right to fix the price of the transporta- tion they sell as the grocer has to fix the price of the com- modities he sells, or the baker to fix the price of bread; that discrimination cannot be stopped so long as competition con- tinues, and that the true remedy is to legalize pooling so that the railways can combine, agree upon a tariff and maintain it. There is much force in the contention that consolidation or com- bination in some form is necessary to abolish unjust discrimination. Competition among the railways for the traffic controlled by large shippers is certainly one of the causes of discrimination, and this cause can only be removed by some form of combination. As we have seen in Chapter III, however, competition is only one of the six great causes of discrimination. No amount of pooling or consolidation can prevent Morgan, the Steel King, from securing favors at the hands of Morgan, the Railroad King; nor keep the Rockefeller railroad inter- ests from favoring the Rockefeller oil interests. In fact, the further combination is carried, the more probable it will be that a few giant interests will control the railways as adjuncts to or elements in a vast industrial dominion, in which the railways are made to serve special private interests instead of the public interest. It is true that the Commission has made some errors, if we base our conclusions, as the railways do, on the assumption that the United States Supreme Court is always right. A leading railroad advocate says : "From 1887 to October, 1904, the Commission rendered 297 decisions involving 353 cases, two or more cases being heard and decided together in some instances. About 55 percent or 194 of the decisions were in favor of the complainant and 45 percent in favor of the railroads. Mandatory orders were issued to the number of 170. Of these 94 were complied with by the railroads, 55 were disobeyed, and 21 were partly The Failure of Control, How Far and Why. 255 complied with and partly disregarded. Some 43 suits were instituted to enforce the orders of the Commission; 34 of these were finally adjudicated, and the courts have sustained the Commission on the merits in only 3 cases." Some other railroad writers make a more generous estimate. Mr. H. T. Newcomb, who appeared before the Senate Com- mittee as the representative of several railroads, gives a table showing that in the circuit courts the Commission has been sustained 7 times and reversed 24 times ; the circuit court of appeals has sustained the Commission 4^ times and reversed it iij^ times; and the United States Supreme Court has partly sustained the Commission in one case and reversed it in 15."* On the facts as they stand we find : First. That about 4/5 of the Commission's decisions have been right on the railroad's own showing. They only claim' 32 reversals out of 170 orders — nearly all the rest have been accepted by the railroads or enforced upon them by the courts. Second. The reversals have been based on questions of law in respect to which the courts disagreed among themselves. Third. The points in respect to which it has been overruled are very few. The decisions have gone in bunches. For instance, while the Alabama Midland long-and-short-haul case was pending in the courts, a number of other long-haul cases were decided by the Commission, and when after several years the Supreme Court gave final judgment, a whole block of the Commission's rulings on this point were discredited, and subsequent reversals were simply repetitions involving no new error. So the question of power to fix rates covers a cluster of cases all thrown down in reality by one ruling. And these two questions represent nearly the whole difference between the courts and the Com- mission. The IS reversals in the Supreme Court do not mean 15 errors even in respect to legal points, but only a very few errors if any. Fourth. The higher court reversed the lower in 9 out of the 17 cases that went up from the circuit court, and in three of these cases the Supreme Court reversed both the circuit court and the Court of Appeals. Fifth. It is by no means certain that the Commission was wrong and the Court right. The fact is that the Supreme Court has not inter- preted the law according to its manifest and well-known intent, but in a narrow, technical way that has defeated in large part the real purpose of the law. It is an absurdity to rule that the law is valid and then to decide that the railroads may escape from the long-haul section by means of dissimilar circumstances created by themselves. And many believe it to be an equal absurdity to declare that the Commission may order the (8*) Since this book was put in type the Commission has again been sustained by the U. S. Supreme Court in the coal carrying case (Interstate Commission v. Chesapeake & Ohio Rd. and New York, New Haven & Hartford Rd.), in which the Supreme Court declared, Feb. 19, 1906, that a railroad cannot evade the Interstate law by acting as a coal dealer and a carrier at the same time and selling coal at prices which allow less than the published freight rates after the cost of the coal at the mines is deducted. 256 Relations of the Railroads to the Public. ' discontinuance of an excessive rate or unjust discrimination but cannot fix a reasonable rate. Take the Kansas oil case for example. The railroads at the dictation of the Combine raised the rate from 10 to 17 cents. Suppose the Commission ordered the roads to cease charging 17 cents, that being found to be unreasonable. The railroads could appeal and appeal, and if after several years the case went against them they could make a rate of 16^ cents. Then a new investigation could be begun, the Com- mission could make a new order, and after years in the courts the rate might come down another half cent perhaps, and so on. Even if all the decisions went against the railroads it would take 105 years to reduce the rate to 10 cents again, calculating on the basis of the average period of 7>^ years required for final litigation. Why not sum up the process in a single order for the ten cent rate, and if objected to by the rail- roads have one judicial contest and finish the business? By the indirect method of declaring one rate after another to be unreasonable the Commission has now the power at last to fix the rate. The proposition to allow it to name a reasonable rate is only putting in direct, brief, effective form the power it now has in indirect, diffused, and ineffective form. The railroads might not act in the way described, but the point is that they could do so ; there is no power in the law as it stands to-day to compel them to adopt a reasonable rate within a reasonable time." It is true that government regulation of rates has proved less elastic than railroad rate-making, but there is such a thing as having altogether too much elasticity, and there is such a thing as having elasticity in the wrong place. Small shippers and rural communities are apt to find our railroad rates absolutely inelastic, while there seems to be no end to their elasticity when the Beef Trust or Standard Oil Trust, Steel Trust, Salt Trust, Sugar Trust, etc., exert their power to bend the rates. Our State and National commissions and foreign govern- ments have exercised control over rates and have not shown any unreasonable tendency to adhere to a rigid tariff. The special rates in Germany and Belgium, for example, fill large volumes, but the same rates are given to all shippers under similar circumstances. And this is what our railways and the trust magnates who so largely control them, are really afraid of. It is the elasticity of favoritism which will take wings if public regulation can be made effective. And it is this sort of elasticity that many of the railroad owners most earnestly desire to keep. It is true that state laws have sometimes fixed rates too low. As a rule the contrary mistake has been made, and the maximum rates have been placed too high to be of any real service. But now and then, as in case of the Nebraska Law of 1893 and the Potter Law of Wisconsin in the Granger days, the prescribed rates either were or appeared to be, unremunerative to a part at least of the railways concerned. It must be noted, however, that no fair trial was made to ascertain whether, (») See "The Heart of the Railroad Problem." Little, Brown & Co., Boston. The Failure of Control, How Far and Why. 257 if the prescribed rates were adopted in good faith, the increase of business resulting from the lowering of the tariff would not make up for the reduction in the ton-mile charge/" It is not true that railways have as much right to fix the price of transportation as the baker has to fix the price of bread, for the reason that the monopoly element is very large in the sale of transportation, while it is very small or wholly absent in the sale of brea4. If a baker does not make a fair price you can go to another baker ; and even if all the bakers combine to make and maintain excessive charges it is easy to establish a new bake shop to compete with the combine and cut the ground from under the attempted extortion. But if the railroad running through your town will not make fair rates you have no remedy but the law. The cost of duplication is too great to make recourse to competition practicable. Even if a competing line is built, a war of rates is likely to follow, and after that a combination or understanding with greater obstacles than ever in the way of reasonable rates because of the new expenditure of capital on which interest and dividends must be paid. As we have seen in Chapter XII, railway charges are not comparable with the charges for commodities in the open market, but constitute a form of taxation — ^taxation without representation and for private profit. As John Stuart Mill says : "The effect of monopoly is to get the "\ power of levying any amount of taxation on the public for individual benefit, which will not make the public forego the use of the commodity." One reason why effective control has proved so difficult in this country is to be found in the political control exerted by the railways and the motive or necessity impelling them to exert this control. Prof. Ely of Wisconsin University throws a strong light on this point when he says :" "In the public control of private property we retain private property, and yet take away from it that measure of control which is one of its natural incidents. - It is a very serious question whether these two antagonistic principles can thus be reconciled. One inevitable result is a struggle of interests, with consequent political corruption and class arrayed against class. Those whose private property it is attempted to control are bound to resist the attempted control which, however just it may be, they will regard as unjust; and to resist it means to enter politics in order to control those agencies which are designed to ('") In the Wellman Case, 143 U. S. 339, the United States Supreme Court held that a law of Michigan fixing the maximum passenger rates at 2 cents a mile could not be held unreasonable for several reasons, one of which was that a lowering of rates might increase business and earnings. But in the Nebraska .decision, 169 U. S. 466, March, 1898, the Supreme Court held the Nebraska maximum rate law void, on the ground that the average reduction made by the statute on local rates was 29.5 percent, which, according to the accounts presented by the railroads, would bring the local earnings below the local operating ex- penses in the case of 5 out of the 7 roads involved. The court did not consider the fact that the increase of traffic, which would come with the lower rates, might be sufficient to make the new rates yield a profit. The neglect of this principle and the reliance on the division made by the rail- ways between the costs of operation on local traffic and through traffic, makes the decision a very shaky one. (See the full discussion of these cases in my chap- ter on "The Legal Aspects of Monopoly," pp. 486, 488, 491-501, Municipal Monopo- lies, edited by Prof. Bemis and published by Crowell & Co., New York.) (") Monopolies and Trusts, pp. 259-60. 258 The Railways, the Trusts, and the People. control them. In this way we have the most powerful classes using politics to promote their private ends." How effectively the railways use politics to promote their private ends will be understood by the reader who has examined Chapter V, on "Railways in Politics." Industrial power comes to the aid of political power. "Property gives strength," says Prof. Ely. "Have we, or can we have, a class sufficiently strong to control those owners of immense properties who are engaged in monopolistic undertakings? It is fre- quently observed that those who are to be controlled exhibit a strength superior to that of those who are to control them. How helpless against a combination of railways is the city of 25,000 inhabitants when strug- gling to do such a seemingly small and entirely right thing as to pro- vide gates at grade railway crossings. In a case the writer has in mind, the very modest efforts of the city were met with the threat that the railway shops would be removed to a village some thirty miles distant and in an adjoining state." In another case, that of a Connecticut city of 70,000 inhabitants, the railroad was told in answer to a request for the right to locate additional tracks in the city, that in return for the privilege it must sink its tracks below the level of the streets so as to make the crossings safe. The railroad replied that if the city persisted in that demand it would take its station and its tracks out of the city and go round ouside. Even the city of Chicago has had for years a mighty struggle in its efforts to protect life at railway crossings. The fundamental difficulty lies in the dominance of private interests over pubUc interest in the management of the public highways, resulting from the private ownership of these great monopolies, or quasi-monopolies, and their alliance with other giant properties under a system of business ethics, which decrees that property shall be managed in the interest of its owners, and under industrial conditions which hold out the promise of vast wealth, power, and social consideration to those who can secure any sort of monopolistic control over trans- portation and exercise it for their private profit either with or without the sanction of law. So long as individuals are allowed to hold the highways of commerce as their private property, and can capture the prizes men most eagerly strive for by managing such properties in ways which, tho contrary- to law, are largely or wholly in accord with the business ethics of the day, so long will the law be broken, and the whole power of these colossal proper- ties will be used to control elections and governments in cor- porate interest, make the law to order so far as possible, and defy or evade it when it cannot be moulded. The Irrepressible Conflict. 259 Either the ownership must be transferred to the public so that the current industrial ethics of management for the benefit of the owner will join with the law in demanding the admin- istration of the railways in accord with public interest, or our business ethics must be modified so that industrial power will be regarded as a public trust — an ethical revolution that will be hard to accomplish without a change in the legal title and ownership base on which the present industro-ethical system is built; or a control must be established so thorough and com- plete as to amount to virtual public ownership, for the essence of ownership in the case of railways is the rate-making power or the power to determine what charge shall be made for a given service, and nothing but thorough public control of the rate-making power in the light of full publicity can keep men in possession of railways from seeking the enormous gains to be obtained in America by the wrongful use of railroad power. Revision of a rate here and there that may be complained of is not sufficient. Even thorough control of interstate com- merce will not do if the roads are left free to play with state commerce, nor will state control answer while the roads can work confusion and retaliation through interstate relations. The dififerences between the laws of the various states give rise to other serious difficulties." No partial control can do the work, and full control is objected to as the practical taking of property for public use without payment, or the establish- ment of public ownership without compensation. Partial measures can alleviate our ills to some extent, but radical measures are necessary to remove the constitutional causes of disease. Chapter XX. THE IRREPRESSIBLE CONFLICT. Why are our railroads burdened with evils so many and so great as those we have found clinging to our railway system ? Can we not discover the cause and remove it ? Is not the main cause to be found in the antagonism of ('^) The Industrial Commission, vol. IX., goi, says: "Our great railway systems lie in territory under the jurisdiction of a number of different states, and when two or more of these states legislate in diverse ways on the same subject, it is difficult to see how a railway manager can act in accordance with the laws of all^ the states to which his road is subject, and at the same time adhere to that unity in management which good business principles demand." 26o Relations of the Railroads to the Public. interest between the owners and the public, together with the vast power the ownership and management of these great monopolies confer? If this is the tap-root of evil, how can it be destroyed? Clearly the antagonism of interest between the owners and the public can be abolished by public ownership, which makes the owners and the public one and the same, and there does not seem to be any other way of uprooting the fundamental cause of disturbance in the railroad world. But may not the cause of evil, tho left alive and in possession, be hedged in and controlled by regulative measures so as to prevent any serious consequences? Regulation can put more or less check on anti-public activities ; the question is whether it can operate with sufficient effectiveness in a case where the anti-public interest is so vast and so powerful, without proceed- ing to lengths that amount practically to taking the roads, or the essential powers of ownership in them, for public use with- out compensation. So long as the roads are private property and managed by agents selected and paid by the private owners, the companies will be operated so far as possible for private profit and in the interest of the owners. Every law that attempts to interfere with this creates a new occasion and new motives to evade or nullify the law, or control the legislative and administrative machinery of government and regulate the regulators in the interest of the companies. Besides the political dangers, incident to attempts at controll- ing these powerful monopolies, regulation is wasteful and only partially effective. You have one set of men to do the work and another set of men watching the first and trying to make them manage the roads in accord with your orders and con- trary to the orders and financial interests of the men who employ and dismiss them and pay their salaries. And at best you cannot expect to get as good service and obedience from the servants of the other fellow as you could get under reason- able conditions from your own servants employed by you, sub- ject to discharge by you, and paid by you to manage the prop- erties for your benefit. The conflict of interest and control is irrepressible so long as the roads are owned and operated as private properties. But if they were made public under pres- The Irrepressible Conflict. 261 ent governmental conditions, would not political abuses of another sort arise that would be as bad as the ills from which we suffer now? Would we not have multitudes of needless employees appointed for pull jmd political spoils, inefficiency raised to the Nth power, partisan use of railway power to keep the offices, establish the sway of bosses and reward loyalty to the machine? If politics are largely a scramble for office now, what would they be with a million more positions in government control? Could civil service rules be made to stand the strain? And if the public board of direction were separate from the ordinary government, could it be kept in touch with the people? Is it not better to palliate and temporize with regulation and cheer- fully bear the ills we have, rather than fly to ills we have not been introduced to ? On the other hand is it not best that a great monopoly in which all are vitally concerned, a public utility involving the rights and destinies of the people, should be managed in the interest of all, and can this be unless the actual control is in a body representing all? When we consider the vast power the railroads already pos- sess, the rapid increase of that power through the growth of consolidation, combination, capital and business, and the griev- ous misuse of the railway power in relation to government and enormous political control already exerted by our railroads, our railway history seems to crystallize into the question: Shall the railways own the government or shall the government own the railways ? But when we turn to the dangers of government railways under the spoils system and machine politics, we wonder whether we are up against something like the old predicament of an irresistible force operating upon an immovable rock, or whether our governmental methods can be so change4 and adapted as to make it safe and wise to own and operate the railways or a part of them as public institutions. On the replies that may be justly given to the questions raised in this chapter, the future history of our railways must largely depend. In succeeding chapters we shall direct our attention to a scientific analysis of the problem presented by our railroad his- 262 The Railways, the Trusts, and the People. tory, and in the light of fact and philosophy endeavor to dis- cover the laws and principles involved so as to reach a reliable answer to the question whether it is best that our public high- ways should continue to be private property subject to such regulation as may be reasonably possible, or whether our iron highways should be public property as well as our highways of earth and wood and stone — whether the railroads should be owned by a few and operated for the profit of a few, or owned by all and operated by the agents of all for the benefit of all. [Index for Parts I and II at end of Part II.] Chapter XXI. THE PROBLEM. The preceding chapters have given us sufficient glimpses of our railroad history to enable us to come to the consideration of the present railroad problem in the United States with a mind full of the most vital facts bearing upon it. Let us exam- ine first the general nature and import of the problem, the broad outlines of the possible solutions, and the tests that must be applied in determining which solution to adopt, and then consider the various systems proposed, in the light of funda- mental principles and the experience of the world. It is clear that the attainment of a just, impartial, economical, efficient, and public-spirited railway systern is one of the most important questions that can engage the thought of a people and the labors of their legislators and statesmen. Railways are the arteries of the body politic. A good circu- lation, easy, even, well adjusted, free from obstructions, con- gestions, and impoverishment, pressure on the governing cen- ters or interference with productive and assimilative activities, is of vital moment to a man or a nation. Everywhere the railways come between producer and consumer, and may tax them both, like the owner of a turnpike who charges the seller when he brings the goods to market and the buyer when he takes them home; or like the owner of a bridge or ferry between two interflowing populations. Everywhere the railways inay determine in large meas- ure who shall thrive or perish, what towns and cities shall prosper most and what shall fail or fall behind. Everywhere their interests press upon our governments and their lobbies camp in the halls of legisla- tion. A slight discrimination in freight rates, or underweight in billing, or some advantage in service, may establish the power of a trust or combine, rob the farmer or other producer of the profit of labor, and manufacture millionaires and multi-millionaires with wealth that be- longs of right to the people. And then a part of this money invested in politics may carry elections, capture legislatures, conciliate execu- tives and court, and turn the people's governments into engines for preventing the people from redressing their grievances against the railways and their favorites. 264 The Railways, the Trusts, and the People. It is this all-pervading influence and dangerous power of the rail- ways which makes it so important that the system should be just, im- partial, and public-spirited as well as economical and efficient. We in the United States are far as yet from the realization of a rail- way system in harmony with the principles indicated. Our railways have rendered incalculable service in the development of the country, and mechanically considered, tho in many regions far below the stand- ards of efficiency and economy that should be attained,' they are on the whole the best in the world. But when we come to higher con- siderations our railways are unrivalled in their defects, some of which are vital to the political and industrial health of the republic and even to the morals of the people. As we have shown in preceding chapters, our railroads crown their controlling owners de facto kings and princes, and establish aristo- cratic power in the heart of the republic. They usurp the powers of government and more. They levy tribute upon millions of people, and make taxation without representation a systematic practice. Industries have been paralyzed, individuals and cities ruined, whole states ground down and oppressed by their exorbitant exactions. They enter politics for railway purposes backed by enormous and unscrupulous power; they carry elections and dominate legislatures in private interest, and have even dared at times to corrupt the judiciary. They oppose good government and civic virtue not only by maintaining vicious lobbies and spending large sums to capture the representatives of the people and warp legislatures to corporate interest against the public good; bribing judges and executives directly with money or position or in- directly with passes, special cars, and other favors ; defying laws they do not like or obstructing their enforcement by tedious and expensive litigation, etc.; but still more perhaps by throwing the financial in- terest of wealthy and influential stockholders out of harmony with pure legislation and honest administration in the public interest, and making their dividends depend in part upon the election of men who can be managed by the railway officers and their agents. Yet our railroad managers and directors are on the whole an excel- lent body of men. There are no barriers to keep tricksters and gamblers or even worse men out of the ownership and control of railway systems, and such characters are in evidence in our railway history; but as a rule the managers are good men, men of high ability and splendid energy and quite as conscientious and public-spirited as the average American citizen in business life; which means that conscience and public-spirit are by no means wanting, but are in a state of subjection, reduced to matters of secondary and tertiary consideration by the exi- gencies of business in the struggle for dividends and industrial domin- ion. Railroad magnates can at will enrich or ruin individuals, cities, states, even whole sections of the country. Merchants and m'anufac- turers beg favors of them, stron g companies and municipalities ask con- (}) See Sections on Location, Service, etc., in Cliapters XXV and XXVI. The Problem. 265 cessions, governors and presidents accept their costly hospitalities at the expense of the people ; governments bow down to them ; markets rise and fall at their motion; fortunes are within their grasp and gift. They may capture hundreds and thousands or millions of money by the inflation of railway capital, the manipulation of stocks, the rise and fall of values determined by their action, or transportation favors to some manufacture, mine, or other enterprise in which they have an interest. It is no wonder that men go wrong under a system that places such temptations upon them. Even those who will not use their power for personal gain, can rarely resist the pressure urging them to unconscientious conduct to protect and advance the financial inter- ests of their stockholders. The owners and managers are not philan- thropists nor public servants. Their purpose is to make money for themselves. The roads are not run for the service of the public but for private profit. So far as service is necessary to or consistent with the making of money, the managers are as a rule eager to improve construction, extend the lines, enlarge facilities, increase speed and promptitude, care for safety and efficiency, multiply accommodations and develop business. But where the interests of owners and managers are wholly or partly opposed to the public interest as in the field of legislation, rate-making, stock-manipulation, etc., the public interest is likely to be as roughly handled as a scattered, untrained football team at the hands of a team of slugging veterans. And so it happens that our railways are at once among the greatest blessings and the greatest dangers of our time. They threaten to checkmate free institutions with industrial im- perialism, and transform democracy into despotism. The power they give to managers of giant combinations seems too great for liberty and equality. The prizes they offer for commercial conquest and the pre- mium they put upon disregard of conscience and civic virtue, tend to debase the ideals of youth. They lend themselves to personal specu- lations and personal animosities. They deny to labor its fair share of product and control, whereby great strikes have been precipitated caus- ing enormous losses to the railways, the employees, and the public. Fierce railroad wars have devastated communities and disarranged the business of millions of people. The railways disturb the fair distribu- tion of wealth. They drain the wealth of farm and factory into the vaults of city millionaires. They foster monopoly. The Standard Oil, the Beef Combine, the Grain Trust and many others of the most powerful and aggressive trusts and combines owe their development largely to railway rebates, underbilling, special service, or other unfair transportation advantages. The railways inflate the market with false values, and even at times cause panic and depression. These broad statements, based on the facts recited in former chapters, make it manifest that instead of the just, impartial, public-spirited institutions the public highways ought to be, 2'66 The Railroad Problem. they are loaded with gross injustice and favoritism, big with ugly political dangers, and saturated with appalling social evils. The problem is to diminish and iinally eradicate the evils and imperfections of our railways, or to improve and iinally perfect our transportation system. The discussion of the remedies for the defects of our rail- ways gathers in the main about three vital questions : (i) Shall the raihvay system he a unit, or a thorough feder- ation, or composed of separate parts more or less in competi- tion with each other? And (2) Shall the management or m.anagements he public or private : If public, what safeguards shall he adopted; if pri- vate, what amount of public control shall be exerted? (3) What system of rate-making and rate-control shall he adopted? The rate question is so intertwined with the others, partly depending upon them and partly furnishing evidence for their decision, that we will confine our attention here to the first two questions, the rate question being really involved in them as reason and consequence.^ (2) There are three classes of rate questions: (i) questions relating to favor- itism or unfair discrimination between persons and places, whether by rebates, secret or open departures from printed tariffs, or by classifications and arrangements of rates affording unjust advantages to certain shippers, etc.; (2) questions relating to the reasonableness of rates per se, their reasonableness in reference to cost of transportation and all existing economic conditions; (3) questions concerning the relative reasonableness of rates. In its broadest application the latter class covers the first. When a rate is shown to be relatively unreasonable and there appears to be an intent to favor some person or place, or the rate is in violation of the long haul clause or other provision of law intended to secure impartiality, we deal with the relative unreasonableness of the rate as a case of discrimination. Wlien no such intent or breach of law appears, we have the simple question of relative reasonableness. Rates might all be relatively reasonable, and yet the whole tariff be unreasonably high; then we would have only the second question to deal with. Or the general rate level might be reasonable, and the particular rate under con- sideration might be quite reasonable per se, and yet the relative adjustment of rates might be very unreasonable. Both these questions arise upon our tariff situ- ation. And even if all rebates were stopped and all departures from published tariffs ceased, these questions would still be waiting for solution. These vital questions cannot be settled by any fixing of maximum rates, for that leaves the relative adjustment of rates below the rtiaxjmum entirely unsettled. Secret discrimination might be abolished and the average level be reasonable, and yet chaotic tariffs and maladjustment of open rates might absolutely prevent the attain- ment of a just, impartial and public-spirited railway service. The rate question, we hope the reader may carry with him as he reads the fol- lowing chapters, is this: In view of the complexity and difficulty attaching to the making of rates that shall be adapted to economic conditions and relatively reason- able, can results in harmony with justice and the public good be secured except from a. management or control "whose motive and policy is in line with justice and the public interest? It is not a matter in relation to which no fixed and universal rules can be laid down— a matter which must be left largely to discretion, which discre- tion will not be rightly exercised unless the motive and purpose of the person or persons exercising it are right? Is it not at the bottom a question of the character, motive and purpose of the management or dominating control? This is the vital meaning underlying the paragraph of the text to which this note is attached. The Problem. 267 The different answers to these fundamental questions com- bine in many varying forms. If the conclusion is for unity on the first question and private management on the second, the result will be a continental system under the rule of a giant corporation or several companies so closely affiliated as to elimi- nate competition and inharmony. This is the dream of Rocke- feller and Morgan and other railway monarchs who thru con- quest and capitulation seek to transform their kingdoms into an empire. If unity is one factor and public management the other, the- outcome will be a national system of railways under the control - of the Government, or of a non-political board of direction representing the people, or representing labor, capital, and the public — the representatives of the public having the preponder- ance of power on the board. This plan of union under public control expresses the views of the statesmen of Germany, Switzerland, New Zealand and Australia and of many thought- ful men in other countries. Competition and private management point to separate rail- way companies in rivalry as to rates, or service, or both. This is the ground of the anti-trust laws and the decision against the Northern Securities Company, etc. Competition and public management would require a number of rival systems each controlled by a public board. Ownership and operation of the railroads by the various states as advo- cated by William J. Bryan' would come under this head, unless the roads were coordinated and unified by interstate agree- ments or by national regulations. The answer to the second question may be that the manage- ment should be partly public and partly private. This may mean that the general control, or at least the final control so far as necessary to secure protection against serious injustice, should be public, while the details of practical operation are left to private management, — the view of the Interstate Com- merce Commission ; or that part of the directors on each rail- way board should represent the public, or, as Judge Gaynor suggests, that the Government should appoint the general freight agents for all the roads ; or that part of the roads should (") See Appendix A. 268 The Railways, the Trusts, and the People. be public and the rest private, — the view of Pres. E. B. Andrews and others ; or that part of the business of some or all of the roads should be public, as, for example, the construc- tion and maintenance of road-bed, the station service and train despatchery, while the conveyance of freight and passengers is left to private enterprise, just as the public maintains the ordi- nary highways but leaves everyone free to run his wagon over them with or without the payment of a toll as may be deemed best. This is the principle Mayor Tom L. Johnson thinks should be adopted.' It is in line with the original theory of railways in England, except that the whole thing was in private hands, one company owning the roadbed, and taking tolls from other companies or individuals doing service as carriers. Mr. Hudson in his "Railways and the Republic" advocates a return to this original plan. Through all the varying forms of opinion and the volumi- nous literature concerning them, the essential questions (re- membering the relation of the interwoven rate question before explained) are always the degree of coordination and coopera- tion, or of competition, and the degree of public control — UNITY or SEVERANCE?— PUBLIC OWNERSHIP OR REGULATION? And if the latter, then how much and by what means ? Chapter XXII. THE SUPREME TEST. In dealing with the railway question, as with any other question of moment, care should be taken not to confine the attention to, nor to put undue emphasis upon, any class or classes of facts to the exclusion of other classes having an important bearing upon the subject. It will not do to judge a university by its base ball record or the size of its students' muscles. The physical training it gives is valuable, but the moral and intellectual training it affords is much more vital. So with railway systems ; it will not do to focus the gaze on the financial balance sheet to the neglect of the intellectual and moral balance sheets, and even of the broad, indirect effects on the production and distribution of wealth, as is (0 See Appendix A. The Supreme Test. 269 usually the case in railway discussions. The direct, financial results are very important; but the broad, political, industrial, and social effects are vastly more important — the sort of char- acter and ideals, and the kind of government, social life, insti- tutions, distribution of population, product, Hberty, oppor- tunity, etc., — the quality and quantity of civilization that different railway systems tend to produce, are matters of the deepest moment. The fundamental test of any institution, method, or service must be its effect upon the public good, its relation to morals, manhood, government, industry, civilization, and progress; and in applying this vital test the principal emphasis must be placed not upon the financial results, but upon the human results; not on money, but on manhood. Final values — real values — ^must be measured in terms of life and progress, not in terms of dollars and cents. Dollars and cents are impor- tant, of course, but life, liberty, justice, virtue, and intelligence are infinitely more important. Material wealth is an excellent thing, rightly obtained and properly used ; but it is not an end in itself — it is only one of the raw materials of civilization. Justice, character, and human development, happy homes and noble lives are the real ends for which railways and all other institutions, whether industrial, political, or social, exist; and only so far as they conduce to these ends is their existence justified. Let us apply both the financial and the human tests to the great questions of unity, rate methods, and public versus private management we are to study; remembering that the financial effects of railway methods and systems are wholly subordinate in importance to the human effects, being in fact only one item, and by no mesms the most important item, in the social balance sheet; and remembering also that even when we are dealing with questions of material wealth it will not do to consider simply the amount; we must consider also the method of production, distribution, and expenditure, for ma- terial wealth, wrongly obtained through bad processes of pro- duction, or unjustly distributed, or corruptly or injuriously used, may be opposed to the public good, and so become illth instead of wealth. Wealth is simply that which produces what is well; illth is that which produces what is ill. 2'7o The Railroad Problem. Men working in white lead, phosphorus, arsenic, or other dangerous trade may make good incomes; but that cannot recompense them for the injury to their health. One may get rich by selling underweight, adulterating his goods, enlarging his dairy by way of the pump instead of via the milky way, gambling in stocks or beating down values and absorbing companies or properties at the ebb, buying votes, corrupting legislatures, congresses, and courts, or even by the primitive method of breaking into banks or dwellings or other variety of direct burglary ; but the record of gain, the itemized account of expenses and receipts, the ratio of cost and the margin of profit, cannot be accepted as the final test of the situation ; in fact the more the profit the worse the case might be for the man and for society. Money-making that undermines health is bad enough ; that which undermines character is worse; and that which under- mines liberty, civic righteousness, and the public good is worst of all. The social health and character are more vital even than the health and character of the individual. The effect of disease of body or soul upon any particular victim is noth- ing compared to the wholesale contamination and contagion that may go from him to affect the community. Even from the individual standpoint, no amount of money can pay for debasement of soul and life to a lower level, a tuberculous taint of greed in the conscience, ossification of the heart, paralysis of the golden rule ganglion, or general debility of character.' Too large a share of attention has been given to the purely financial side of economic questions. Hours, days, weeks, and (1) I remember many years ago when visiting with Phillips Brooks,_ one day I asked him about the choice of an occupation. He talked in his charming way of mercantile and artisan life, of teaching, journalism, authorship, medicine and law, and finally of the mintstry as offering a life full of beautiful liuman relationships, noble thoughts and aspirations and endless opportunities for service. He leaned against the mantel in the study of his home in Clarendon street and spoke at first slowly and with the lines of his face flowing downward in repose, but as he warmed to his subject and his thought moved smoothly and rapidly that splendid animation that so often transformed his heavy features into seraphic beauty came into his countenance, and in the half-aspirate that showed the intensity of his earnestness, he said; "Service is the great thing, and fine relationships and the full develop ment of the best possibilities of one's nature. Many honest occupations afford great opportunities for service and development; the ministry, medicine, statesman- ship, and teaching, most of all ; but for the human relationships that make the glory and beauty of life there is nothing like the ministry. There isn't much money in preaching, but money is not all. My boys come back from State street and tell me they are making tens and hundreds of thousands; but I would not do what they have to do, I would not spend my life as they are spending theirs, for all the money in the city." Lessons from Other Lands. 271 years of discussion and miles of statistics have been devoted to the claim that public ownership saves money for the people, and the counter claim that private management is the more efficient, to the utter neglect of far more important considera- tions. It is wise and proper to ask whether or no public ownership is economically superior to ownership by a private corporation under similar conditions in other respects than the form of ownership, and public ownership has no cause to fear such a test; but the mere business comparison is of small weight compared with the other elements of the case — elements as much more important than money, as justice, political purity, manhood, mind, character, soul, diffusion of benefit, and true relations among men, are more important than the number of train-miles run, the amount of goods manufactured, the tons of copper and iron that are mined, or the bushels of wheat and potatoes raised. The fault of our age is the wor- ship of gold and its representatives in the world of merchan- dise. This fault has taken possession of economic discussion. It is of prime importance that the commercial astigmatism of the time should be corrected so that social questions may be viewed in their true proportions and relations. Let us examine the facts in the white light of a philosophy in which all human interests are blended in their due propor-. tions. Chapter XXIII. LESSONS FROM OTHER LANDS. In this discussion of foreign railways our attention will not be devoted to statistics of miles, dollars, tons, and passenger traffic,' but to the methods and policies that characterize the different systems, the relations of the railways to the rest of the social structure, and the lessons that history and present conditions may have for us. Only an outline can be given here, but subsequent chapters will bring out many other facts (^) The question of comparative rates and economy will be dealt with in a subsequent chapter. 272 The Railways, the Trusts, and the People. relating to foreign railways, and reference will be made to sources of further information." More space will be given to England than to any other coun- try, except Germany, not because the lessons she has to teach are intrinsically more important than those to be derived from the railroad history of other lands, but because she has gone further than any other nation in the particular path we are now following, so that her experience is specially relevant to our present problems. ENGLAND. England is the birth-place of the iron horse.' Steam trans- portation began about 80 years ago. The profits of the early lines were so large that railway stocks went to a premium of 100 percent. And in consequence of this a mania for building railroads broke out in 1835, resulting in overconstruction, panic, and collapse. No national plan of railway location was adopted. The English theory was private railways with competitioa and parliamentary regulation. The method first .adopted was competition of various carriers on the same track. All the early charters provided that any shipper or carrier could run his cars and locomotives over the road on payment of tolls not exceeding those fixed by law. This system was in actual use for many years. Even as late as 1839, sixteen years after the first steam road was chartered, locomotives and cars belonging to different carriers and traders were run on the Manchester and Liverpool and other rail- ways in the Commonwealth. But gradually this form of competition disappeared.- Small shippers could not afford the luxury of a locomotive, and smaller shippers still could not afford to own a car. The big carriers drove out the small ones, and finally the railroads drove them all out. Safety, order, and economy were greatly favored by the con- solidation of the traffic in the hands of the railroad company. Moreover, it was easy for a track company to make it uncomfortable for outside carriers through its control over train service, time schedules, sidetracks, (') Additional observatians by the same writer may be found in the series of articles on railway subjects in current issues of The Arena. (') Stephenson invented the "traveling engine" or locomotive in 1814. The Stockton & Darlington road, originally a horse railway, was authorized in 1823 to carry passengers and goods by steam. In 1825 Stephenson was running an engine on that road, and in 1826 he broke ground on the Manchester and Liverpool road which was completed in 1830. The first trains were strings of stage-coach bodies hauled on an iron track by a steam boiler on a buck-board. Afterward two or more of the stage-coach bodies were welded together to form a compartment car, with the doors every few feet along the sides instead of at the ends; and such cars are still in use all over England except on the best express trains. Lessons from Other Lands. 273 and other facilities, and it could charge the maximum tolls allowed by law while running its own cars at actual cost. Competition on the same track having failed, English legislators turned, in 1840, to the theory of parallel competing railways.* Numerous charters were granted, and the railway mania of 1844-7 followed, sinking millions in unnecessary duplications and bringing on another serious panic and collapse. In 1844 a select committee, with Mr. Gladstone as its chair- man and guiding spirit, went over the whole railway ques- tion and reported that rates were too high ; that "competition between railway companies is likely to do more injury to them than good to the public"; that, on the other hand, mo- nopoly in private hands was to be dreaded and guarded against, and that the government should reserve power to purchase the lines at reasonable cost after a given time.' The next year the Gladstone Bill, known as the Cheap Trains Act, was passed, providing: (i) for fares not exceeding 2 cents a mile at least on one train a day; (2) revision of the maximum rates; (3) certain powers for the Board of Trade in order to hold the railways to the law ; and (4) the compulsory acquisition of the railways by the State, in the discretion of Parliament, at any time after 21 years from that date (1844) upon payment of "25 times the annual divisible profits estimated on the aver- age of the three then next preceding years." Before the stated time arrived, however, railway earnings had grown so large, and railway influence had become so great, that the option of purchase was not exercised, tho the possible ultimate possession of the railways by the State has been kept steadily in view, every railway act since 1844 being made subject to the Gladstone law of that year and the option therein contained. In early days Parliament fixed the tolls to be charged by the owning companies for the use of the track, but did not regulate the freight or passenger rates to be charged the pub- (•*) A Parliamentary Committee, of which Sir Robert Peel was a member, reported in favor of competing roads and laissez-faire, arguing that "an enlightened view of their own interests would always compel managers of railroads to have due regard to the general advantage of the public." (°) Sir Robert Peel, who was Prime Minister at this time, had lost confidence in enlightened self-interest mixed with competition as a medicine for railway ills, and had come to the conclusion that railroad competition was an expensive luxury, and that there might be something in the system of State management which was being so successfully developed in Belgium. It is said that the principle of State purchase was also approved by the Duke of Wellington who was in the Ministry of 1844. 274 The Railroad Problem. lie. As the railway companies absorbed the traffic and monop- oly grew, however, Parliament resorted to the regulation of the railway tariff by a system of fixing maximum charges." And this method has been continued to the present day, but without satisfactory results in the direction of obtaining rea- sonable rates. The English railway rates are on the whole far higher than on the Continent or in the United States, the average ton-mile rate being estimated at 2^ cents and the average passenger rate at about 2}i cents.' Considering actual rates instead of averages, taking the charges for similar services over the same distances, Acworth says "the English rates are the highest in Europe, but are not so high on local traffic as the rates in the United States." The English freight rate includes collection and delivery, loading and unloading, and to a large extent insurance also. Moreover, the traffic on the English roads is in small con- si^ments and is carried and delivered with the promptness of our express, so that it is no wonder their ton-mile rate is higher than ours, especially when we remember that our average haul is very much greater, and that cut rates and secret rebates, bringing the receipts below the published tariff, do not exist in England to anything like the extent they are practiced here. These things help to explain why the English ton-mile rate is more than three times the American average of .78 of a cent, which is largely due to our discriminations and enormous wholesale shipments of cheap goods for immense distances. (^) The old toll boards of the turnpikes were incorporated at enormous length into the new railroad charters as they were granted. One for instance which con- tained 381 sections, prescribed among other things that the charge for a "horse, mule, or ass" should not exceed 3d. (6 cents) per mile, while for a "calf, pig or other small animal" the limit should be id. (2 cents) per mile. C) The figures are estimates but the best authorities are in substantial agree- ment. Until recently no English railway kept any ton-mile statistics. Lately the Northeastern has gathered data for its system showing 2.25 cents per ton-mile with an average haul of 22 miles. But it is agreed that the North Eastern figures are considerably lower than the average for the Kingdom. In i8gi Acworth estimated the ton-mile rate to be between 2 and 3 cents, stating that the truth was probably nearer the latter figure than the former. ("The Railways and The Traders," pp. 205-6.) Acworth's method applied to railway returns for 1905 gives substantially the same result, the receipts per ton being 61 cents now as against 64 cents in 1890. The normal passenger rates in Great Britain are 4 cents a mile first class, 3 cents second class, and 2 cents third class. Excursion and commutation rates cut the averages considerably below the normal levels, and workingmen can go on special workingmen s trains night and morning at very low rates. From Glasgow, for example, a worker can have a weekly ticket for 24 cents that will take him to any one of a considerable number of stations 2 to 7 miles out. This gives him 7 miles for 2 cents, 12 rides for is., one-third of a cent a mile. He can go 21 miles out for a little over half a cent a mile on workingmen's trains. Lessons from Other Lands. 275 A detailed comparison of a large number of rates for the same distances in each comitry leads Acworth to the conclusion that local rates in the United States are quite equal to and in many cases much higher than the local rates in England/ in spite of the fact that English rates include loading and unloading, col- lection and delivery, express speed, etc. As compared with rates in Germany and Belgium, English rates are very high, and there has been for many years a con- stant agitation for reduction. In passenger rates some con- cessions have been made, but in freight rates on the whole no reduction has been made for over 35 years. English railway managers tell me that the roads unite and agree upon railway rates and regulations, which are not departed from except on notice to the other roads. Some managers say there has been no competition as to rates for 40 or 50 years, with the exception of a rate war now and then of limited duration and extent, when some new line was opened. There is competition in service, but no competition in rates," and the effort to secure fair rates by legislation has not been successful. (8) "The Railways and The Traders," 241 to 248. Acworth also refers to the fact that English roads do not twrn over the cream of the business to express companies and private car ILnes. Our average ton-mile rate does not include express charges as English and continental ton-mile rates do. In addition to our freight rates many shippers have to pay icing charges and other special transportation expenses which English shippers do not have to pay- A few of Acworth's comparisons may be of interest here. "The tariff for drapery and other goods of the same class out of Chicago for a distance of so miles works out as equal to 28s. 6d. per ton. From Manchester to Lancaster the distance is 51 miles, and the rate of 20s. includes collection and delivery. If we compare similar distances out of London and out of New York, we shall find some remarkable contrasts. Take Bedford, for instance, on the Harlem branch of the New York Central, 40 miles out, and Leighton which is distant 39 J4 niiles from the Euston station (London). Carrots are iis. in the former case, as against 5s. in the latter; hay and straw in America 18s. sd., in England 6s. 8d., los. lod. and I2S. 6d., according to quan^iity and method of packing. For butter the Amer- ican pays, according to method of packing, from i6s. yd. to 36s. lod. The highest English rate is 26s. 8d., while the lowest is los. less, and in every instance the English company takes the risk and does the carting at both ends in addition. "We have heard a good deal in England about the extortionate rates which are killing the fruit trade. The American rates appear to be higher in almost every case. Here is one comparison. Kirkwood to Jersey City, 141 miles; peaches in less than car-loads, ow.ners' risk, 55s. 2d.; company's risk 82s. lod. In England, raspberries and strawberries from Wisbech to Manchester, 142 miles, owners risk, 40s.; company's risk, 47s. 6d. ; Stanbridgeford to Manchester, 147 miles, plums and gooseberries at company's risk, 29s. 2d. The American rates are quoted as by special fast train, the English by goods train; but of course the English service delivers first thing next morning, and the American fast train cannot do more. An ordinary American goods train would be liable to take a couple of days. The American rates exclude both loading and unloading. The English include not only these services but collection and delivery as well," Acworth also found our local coal rates 15 to 20 percent higher than the English local rates, and our milk rates 40 to 50 percent higher, etc., etc. (^) The text refers to railway competition. There is water competition, of course, but even this the railways ha«ve sought to eliminate as far as possible by obtaining control directly or indirectly of many steamship lines, docks, canals and other waterways. There are many canals in England, the cost of which per mile has been less than a tenth of the railway cost per mile, and on working ex- penditure the economy of transportation by canal is at least 65 percent. (Rep. Select Com. on Canals, 1883.) Sir Arthur Gotten declares that goods can be con- 276 The Railways, the Trusts, and the People. The joint committee of 1872, one of the ablest committees that ever sat in England, reviewed the 40 years' effort at legis- lative regulation of railroads, and concluded that aside from some moderate success in securing safety, English railroad legislation had never accomplished anything it had sought to bring about, nor prevented anything it had sought to hinder." The cost of the practically useless mass of 3,300 enactments had amounted to nearly $400,000,000 — an enormous price to pay for the discovery that regulation did not regulate. In 1873 another law was passed establishing a railway commis- sion with power to fix through rates, enjoin discriminations, veyed by water at one-tenth the cost by railway. (Page 8 "Inland Navigation in the United Kingdom," by Edwin Clements, Fourth International Congress on Inland Navigation, Manchester, 1890.) The ratio of one-tenth, however, can hardly be taken as an average for England, tho the cost by water is very small compared to the cost by rail. But the railways have checkmated the canals by leasing or purchasing a third of the mileage "so adroitly selected as to strangle the whole of the inland water traffic." (Testimony of Mr. Conder before Canal Com., 1883.) The railways have "by means of very questionable legality acquired control of the more important links in the canal system enabling them to eifectually control the through traffic." The law of 1873 made it illegal for railway companies to take over or control the traffic of a canal, but in later years a number of absorp- tions were authorized on the ground urged by the railroads that consolidation would favor economy and enable them to reduce tolls. Where authority was not obtainable the law has been evaded by buying or leasing in the names of railway officials or stockholders, as in the case of the Bridgewater Company. (Natl. Rys. by James Hole, p. 69, and Edwards, p. 46.) Having obtained possession of the canals the railways raised the tolls or allowed the canals to fall into disrepair or ceased to operate them at all in order to divert traffic to the railways. (Page 13, Rep. Select Com. on Rys., 1881-2.) For example, the Northeastern Railway exactly doubled the rates on the Market Weighton Canal almost immediately after becoming its possessor. On the Leeds & Liverpool Canal the charge was put up to i6s. a ton, the railway rate being 15s. When this lease expired the Canal Company was able to reduce charges from i6s. to 8s. and still pay about 15 percent dividends after spending large sums in improving the canal. In other cases the railways have simply let the canal run down. The Great Western Railway, for example, let the Stratford Canal get so choked up and out of repair that a fully loaded boat rubbed along on the bottom and had to make its way through mud as well as waty. The Bolton & Bary Canai, held by the Lancashire & Yorkshire, and the canals and navigation controlled by tlie North- eastern Railway, such as the Derwent, Rocklington, Driffield, Leven, etc., have been allowed to get so out of repair as to be almost impassable. Frequently the railways have subsidized the canal owners with a guaranteed income, then raised the canal rates to prohibitive figures and stood the loss in order to Icill water competition. The Great Northern Railway, for instance, agreed to pay the Witham Navigation £10,545 a year for the privilege of losing £755 a vear; and the same railway agreed to pay £9,570 a year for the Channel of Fossdyke, with an income of £689. These agreements were for 999 years and 894 years respectively. For every £150 share in the river Don Navigation the railways paid £3,000. By such means the railways have largely destroyed the efficiency and protective power of England s internal navigation. ('") The committee said that "rates and fares were too high; that competition between railroads exists only to a limited extent and cannot be maintained by legislation; that nothing had been done which had any effect in checking or regulating inonopoly; that the railways were practically under no restriction except that of their own interests, which may or may not be the same as that of the public; they claim and exercise the right to favor one place or one description of trade at the expense of another; or to charge two different rates for the same service if they thmk it their interest to do so; and not only do they claim to exercise all these powers, but they refuse to tell the public how thev exercise them or why they exercise them." It further said that the only remedy suggested for the political and com- mercial dangers accompanying the growth of these big corporations "is the acquisi- tion of the railways by the Government." But it declared that the terms of purchase named m the Gladstone Act of 1844 "do not appear to be suited to the present condition of railway property." Lessons from Other Lands. 277 and give damages to persons injured by railway violation of law. In 1881 a new committee investigated the workings of this act, and found that rates were still too high and discrimina- tions still prevailed. In 1888 another law was enacted strengthening the power of State control and ordering a re- vision of the rates. Millions of railroad rates were put into the crucible of reduction. The inquiry lasted 130 days, and the official minutes occupied 3,926 pages, and in the end the rail- roads got the best of it, for in return for every rate that was reduced they succeeded in lifting the legal level of i^ rates above the former tariff, and a little later they advanced their rates so that their total charges were lifted considerably above the totals before the revision of 1888. In consequence of this another law was passed in 1894 giving the Commission power, on proof of the unreasonableness of any increase since 1892, to order a return to former rates. Complaints of extortion and discrimination still pour in upon the Board of Trade, which has only conciliatory powers, and upon the Commission, which has power of injunction, fine, and imprisonment. The Board of Trade has received over 3,200 complaints since 1888, nearly all of them involving some ele- ment of discrimination either directly or indirectly. No such vivid cases of discrimination, however, as those which built the fortunes of the Standard Oil, the Beef Trust, and other big shippers in this country are to be found in England. The stand- ards of civic and industrial honor are higher, the temptations are less, and the control of law more vigorous. But there are, nevertheless, decided discriminations, undue preferences, secret rebates, payments of fictitious damages, denial of facilities, de- lays and persecutions by means of expensive litigation, etc., which are quite sufficient to cause great dissatisfaction among English shippers. The Secretary of the Traders' Association tells me that numerous as are the complaints made to the Board of Trade, their Association gets ten complaints to one that goes to the Board. Shippers as a rule are afraid to fight the railways." (") President Hadley says: "The number of complaints by no means indicates the number of men who have grievances. iVIen have good reason to think twice before they enter a complaint. A complainant is likely to lose more money than he gains. Every important case is so persistently appealed that the original prompt- ness or cheapness of Railway Commission practice counts for nothing, and the indirect results are worse yet. A complainant is a marked man, and the Comsnis- 2yg The Railroad Problem. And besides this the great bulk of discriminations are not known to any one whose interest it would be to make com- plaint. When a decision is made against the companies they apply it to the particular station and shipments involved, but refuse to apply it to their other stations and shipments, and smilingly await proceedings on the part of every other shipper who may have a similar complaint, thus making the cost of obtaining justice in many cases far exceed its value when it is secured. The companies in every way endeavor to escape the law by evasion or defiance. For example, a coal company brought suit for reduction of railway rates, and when the re- duction was ordered the railway refused to carry the coal. When further litigation resulted in an order to carry the freight, the railway did so under such circumstances of delay and insufficient facilities that the coal company was compelled at last to compromise the difficulty. Nevertheless a considerable number of complaints (more than a hundred a year on the average) come before the Board of Trade and the Railway Commissioners under the traffic acts of 1888 and 1894. The Secretary of the Board of Trade tells me that these complaints relate chiefly to "high rates, poor facilities, and discriminations." About half the complaints charge excessive rates, which amount in most cases, on the face of the complaint, to discrimination between places or commodities. A large number of complaints concern higher charges for short hauls than for longer hauls on the same line, and another large group allege disproportionate charges or higher rates for shorter distances as compared with the rates on other lines. A fourth group, containing about 25 percent of all cases, includes complaints of delay, overcharges, refusal of facilities or privileges accorded others, personal preferences in rates, etc. For example, the London and Northwestern charged the complainant 12 cents a ton up to 20 miles for hauling coal, while charging the complainant's competitors only 9 cents. A coal shipper complained that the Midland Railway had for many years made a practice of allowing a rebate of 6 cents a ton to large dealers, and that in the lists of rates furnished the complainant no mention was made of this rebate or allowance, tho other rebates were mentioned. In a case decided by the Railroad Commission in 1901 the court found that the Midland Railway had given Rickett, Smith & Company, coal sion cannot protect him against the vengeance of the railroads. A town fares no better. It complains of high terminal charges and the company retorts by raising the local tariff for that place 100 percent. A coal mine complains of freight rates and the railway refuses to carry for it on any terms. Even the War Department is afraid. It has its grievances, but it dare not make them public for fear of reprisals." ("Railroad Transportation," 175-6.) Lessons from Other Lands. 279 dealers, a preference of 54 of one percent in rebates on their annual traffic account, and it enjoined the railway and allowed damages to the complaining shippers. Some 75 suits were entered by different shippers for this one cause. In the sarme report 28 cases relating to discrimination in brewery traffic, and 16 other applications for injunc- tions against undue preference in respect to facilities, rates on coke, brick, flour and grain, and other commodities to certain shippers or particular places, and a request from the Inverness Chanaber of Com- merce for an order enjoining the railways from selling season tickets to big shippers (with a traffic worth $1,200 to $S,ooo or more a year) at lower rates than they will sell them to ordinary passengers. The report of the Railway Commission dated 1903 contains some 270 cases, 95 of which charge discrimination." A few examples will show the character of these cases: i. Application for order enjoining rail- ways to desist from undue preference to complainant's competitors through rebates on flour. 2. For injunction against railways granting preferences to the firm of Leethan & Sons on their traffic. This case was tried, the preference found, and the injunction granted. 3. Undue preferences to certain manufacturers of pig iron in the rates on coke. 4. Undue preference to a certain shipping company through superior facilities and lower rates than were given to others on the same goods and the same routes. Case settled before trial. 5. Undue preference to Corral & Company by rebates on coal to certain stations while refus- ing to make the same allowances to other shippers. 6. Charging B. higher rates than E. on coal to the same point. Case tried, undue preference found. 7. Refusal of allowances for cartage made to others. 8. Refusal to supply cars in due proportion. 9. Preference of com- peting millers and subjecting traffic of applicant to undue prejudice. 10. Preference of brewers at Burton and Lichfield by low rates and terminal allowances.- 11. Preferences in favor of brick-makers in Nuneaton and Tamworth by assessing the weights of their bricks lower than the bricks of complainants. 12. Allowing 93 cents a ton for services in loading and unloading, etc., and refusing similar allowances for similar services by other shippers. 13. Undue preference through higher rates on coal for domestic use than on coal for export, etc. Coming now to the Board of Trade, let us look at the 7th report (1902). It takes 50 large pages to state the 325 complaints entered in the 3 years. A very large part, practically all in fact, are either in form or in substance cases of discrimination ; even in complaints of excessive rates the gist of the charge is usually that the rates complained of are excessive as compared with other rates the companies make." (") The sixteenth report of the Commissian, dated 1905, and covering the year 1904, has come to hand in time for a note before the_ galleys are made up into pages. Of the 103 suits entered before the Commission in 1904, about a quarter (25) relate to undue preference, rebates, refusal or neglect to afford such reasonable facilities as were accorded to others under similar circumstances: and most of the other cases, charging unreasonable rates, etc., were really based on some element of unjust discrimination in one form or another. (13) Wliile this book is on press, the eighth report, covering 1902 and 1903, has come to hand. More than half the 180 new complaints filed in the 2 years 28o The Railways, the Trusts, and the People. A few further concrete illustrations from recent years may be of interest. I. Refusal of free cartage to a manufacturer tho another mill further away had the benefit of free delivery. 2. Refusal of allowance for loading, etc., on private siding tho such allowance was made to a rival firm. 3. Rates on coal from mines at Leigh and Abram to Winnington, 26 miles, were 50 cents a ton against 42 cents from the mine at Haydock, 29 miles. 4. Complaints of delay, insufficient facil- ities, etc. 5. Fourteen complaints of increased charges for conveyance of small parcels' in freight-train transportation, and that companies were not following a decision of the Railway Commission. One of the com- plaints on the ground just stated was filed against the railways generally by the Co-operative Wholesale Society with practically 10,000,000 people back of it in interest and sympathy. The companies revised the schedule and reduced the rates. 6. Refusal to grant complainants the same facilities for warehousing traffic as are granted to their competitors. The Board succeeded in removing the preference without trial. 7. A rate of $11.25 on india-rubber goods from Birmingham to Newcastle- on-Tyne against $8.95 on the same goods intended for export. 8. One shipper stated that he was charged $9.75 for a carload of coal (6 tons) from Cork to Baltimore, while the Baltimore Fishery Schools were charged only $5.10 for the same service. After the usual correspondence by the Board of Trade the matter was settled by the railroads agreeing to give the plaintiff the same rate as the Fishery Schools. 9. Another shipper alleged that since he had sent his traffic from Methven via the North British route from Perth instead of the Caledonian, the company had delayed his traffic at Perth while other traffic was sent on; that the company had deprived him of the use of facilities formerly enjoyed, and had stopped his credit. These seem very much like American cases. The English railway manager appears to have as good an appetite for foreign goods as any American manager. I quote from the Progressive Review, 1895 : "Foreign linen goes from Liverpool to London for $6.10 a ton while home linen pays $9.25, or 50 percent more. Foreign woolen and worsted goods are carried from Manchester to London for $6.10, against $9.75 or 60 percent more for English goods. Foreign timber travels from Hartlepool to Mimeaton for $3.12 a ton while English timber pays $7.50 or 130 percent more. English dressed meats from Liverpool to London $12.50 a ton, American meat $6.25, just half the home charge. American cattle slaughtered at the wharf in Glasgow, $11.25 to London; home beef, $19.25. Cheese goes all the way from New York past Chelford and other English stations for less than the rate from those stations to London. "Foreign hops are conveyed from Boulogne, via Folke-stone, to London at $4.37 per ton, while the charge from Ashford, on the same line of railway and much nearer to London, is $8.75, or just twice the amount for about half the distance. The rates for imported butter, directly relate to questioitis of discrimination — undue preference, rebates, denial of facilities accorded to others, excessive charges as compared with other rates, etc, and nearly all the 180 cases involve discrimination directly or indirectly. Lessons from Other Lands. 281 cheese, bacon, lard, and wool from Southampton Docks to London, distance seventy-six miles, is $1.50 per ton. From Botley in the same county, and a similar distance, the rate for all these goods is $4.80, or 2ig percent more than for foreign stuff. The difference in rates between Southampton Dock Station (foreign) and the Southampton Town Station (home) is as follows : Hops, $1.50 and $5 ; apples, $1.25 and $3.23; pressed hay, $1.25 and $2.50; eggs, $1.66 and $5. Further, Professor Hunter showed that while French fruit is cliarged at the rate of 45^2 cents per ton per mile to London by the Southeastern, the same company charges Kentish farmers 11 cents per ton per mile, or more than double."" The London Times declared that "there are no arguments within the range of human ingenuity that will convince a Sussex hop-grower of the equity of an arrangement by which foreign hops are brought from the other side of the Channel for less than he has to pay to get across Surrey. . . . For nothing can shake the belief of the home producer, and in our view nothing ought to shake it, in the argument that if these low rates pay the companies, he is shame- fully overcharged; while if they do not pay, he is still overcharged to cover the loss and bring up the average." There are many discriminations that never come to the surface in England. I had to go to Italy to find out the true inwardness of English railway management. (See section of this chapter on Italy.) How completely English railways, like our own, are under the sway of commercial interests is illustrated by the attack the Midland Railway made on the cooperators at the dictation of the traders. I have the story from the lips of J. C. Gray of Manchester, the General Secretary of the Cooperative Union with over 2,000,000 members, S,ooo stores and a business above $450,000,000 a year. The merchants, or "traders" as they are called in England, said to the General Manager of the Midland: "Here we are paying you a lot of money for freights, and these cooperative societies are growing fast and threatening to extin- guish us ; now you must help to extinguish them." So the Midland Manager issued an order that all employees who belonged tO' any co- operative society must give up their membership or be discharged from the railway. Such an arbitrary order and rank piece of injustice would not have been possible on the German, Swiss or Belgian roads or any other State system, but the private railway is arbitrary and despotic. The notices were posted up along the line and word was sent to the Cooperative Union. Mr. Gray went down to London to (") From the Progressive Review, vol. II, no. ii, pp. 440, 442, where a number of facts relating to important rates are condensed from the testimony before Parliamentary comTnittees. In Mansion House Association v. The London & South- western Ry. Co. (Apr. 10, 1895, Ry. & Canal Cos., vol. IX, p. 20), it was held by the Railway Commission that making lower rates on foreign butter, cheese, hops, meat, lard, bacon, ham, wool and other goods from Southampton to London, than on home merchandise for the same or a shorter distance, constituted an undue preference, and the court ordered the company to carry home and foreign produce on equal terms. The company raised its rates on imports and the goods went round by water to London. Owing to natural conditions and the tendency of the companies to confine each decision to the precise case in hand the order does not seem to have been of much practical benefit. 282 The Railroad Problem. see the general manager. The G. M. said: "Our rules provide that a man cannot engage in any other business." Gray replied: "We claim full liberty for the men to use their spare time as they please, so long as they do not acquire interests that may unfit them for their work. We have 1,500 societies and S,ooo stores and are doing well up toward a hundred millions of pounds of business, (i) We will divert from your road £120,000 ($600,000) of tralBc, can transfer it in a fortnight. (2) We own a lot of your stock. We'll divide it up, and tho you may be able to outvote us in stockholders' meeting, we'll be able to prevent you from doing any business. (3') We have friends in Parliament and we'll see that every measure you desire is opposed and blocked if possible." So the General Manager got down on his knees metaphorically and said : "Well, Mr. Gray, you don't want to force me to withdraw that order and admit I was mistaken; it would have a bad effect on a man in my position." "Very well," said Gray, "if you'll let it be understood all along the line that the order is not to be enforced, and will replace any man who may have been or may be discharged under it, we shall be satis- fied." The G. M. agreed to this and kept his word. Here and there a man was discharged, but a letter from Gray to the G. M. fixed it up all right. The morals of English railways are by no means so lofty as their rates. The absence of conscience was noted very early in their history, and the condition has become chronic. In the Edinburgh Review for October, 1854 (vol. 100, p. 420), Her- bert Spencer analyzes the railway situation on the basis of the investigation made by the Select Committee of 1853, and the "History of the English Railway, 1820-1845," by John Francis. Spencer said : "If, in times past, there have been ministries who spent public money to secure party ends, there are, in times present, railway boards who use the funds of the shareholders to defeat the shareholders. Like their prcrtotj'pe, joint-stock companies have their expensive election contests, managed by election committees, employing election agents; they have their canvassing with its sundry illegitimate accompaniments; they have their occasional manufacture of fraudulent votes. And, as a general result, that class-legislation, which, until of late, was habitually charged against statesmen, is now habitually dis- played in the proceedings of these trading associations; constituted tho they are on purely representative principles. "The general public— who never see a railway journal and who skip the reports of half-yearly meetings that appear in the daily papers — are under the impression that dishonesties akin to those gigantic ones so notorious years ago are no longer committed. They do not forget the doings of stags and stock-jobbers and runaway directors; they remember Lessons from Other Lands. 283 how men of straw held shares amounting to £100,000, and even £200,000; how numerous directorates were filled by the same persons — one having a seat at twenty-three boards; how subscription contracts were made up with signatures bought at los. and 4s. each, and porters and errand- boys made themselves liable for £30,000 and £40,000 apiece. They can narrate how boards kept their books in cypher, made false registries, and refrained from recording their proceedings in minute books ; how in one company half a million of capital was down to unreal names; how in another directors bought for account more shares than they issued, and so forced up the price; and how in many others they repurchased for the company their own shares, paying themselves with the depositor's money. But, tho more Or less aware of the iniquities that have been practised, the generality think of them as the accom- paniments of bubble schemes. "A history of railway management and railway intrigue, however, would quickly undeceive them. In such a history, the doings of pro- jectors and the mysteries of the share-market would occupy less space than the analysis of the multiform dishonesties that have been com- mitted since 1845, and the genesis of that elaborate system of tactics by which companies are betrayed into ruinous undertakings that benefit the few at the cost of the many. From the published report of an investigation committee it would be shown how, not many years since, the directors of one of our lines allotted among themselves 15,000 new shares then at a premium in the market, — how to pay the deposits on these shares they used the company's funds, — how one of their number thus accommodated himself in meeting both deposits and calls to the extent of more than £So,ooo. We should also read in it of directors who made loans to themselves out of the company's floating balances at a low rate of interest when the market rate was high; and who paid themselves larger salaries than those assigned, entering the difference in an obscure corner of the ledger under the head of 'petty disburse- ments.' There would be documents showing that the proxies enabling boards to carry contested measures have in some cases been obtained by garbled statements ; and again, that proxies given for a specific pur- pose have been used for other purposes. One of our companies would be proved to have projected a line, serving as a feeder, for which it obtained shareholders by offering a guaranteed dividend, which, tho understood by the public to be unconditional, was really contingent upon a condition not likely to be fulfilled. The managers of another company would be convicted of having carried party measures by the aid of preference shares standing in the names of station masters, and of being aided by the proxies of the secretary's children too young to write. "The corruptions here glanced at are not mere exceptional evils, but result from some deep-seated vice ramifying throughout our system of railway government.'"' C^") Spencer says that some of the early lessons in fraud came from the leasing or purchase of subordinate neighboring lines, the prices being lifted far 284 The Railways, the Trusts, and the People. The railways have always had great influence in Parliament. The landowners who owe so much to the railways and are so largely interested in them constitute a large portion of both Houses. An official return showed that in 1845 there were 157 members of Parliament whose names were on the registers of new companies for sums varying from $1,400,000 downwards. The supporters of railway measures openly boasted of the num- ber of votes they could command in the House. Members were personally canvassed, and Peers were solicited." Spencer says : "It is not to be expected that a landowner who, out of Parhament, exerts himself to get a railway for his district, should, when in Parliament, not employ the power his new position gives him above real values by competitive bidding. "After a few recurrences of this pro- ceeding it was clearly perceived by quick-witted speculators tliat the making of lines so circumstanced as to be bid for by competing companies would be a lucrative policy. Shareholders who had once pocketed these large and easily-made gains were eager to repeat the process, and cast about for districts in which it might be done. Even the directors of the companies by whom these high prices were given were under the temptation to aid in this; for it was manifest to them that_ by obtaining a. larger interest in any such new undertaking than they possessed in the purchasing company, and by using their influence in the purchasing company to obtain a ^ood price or guarantee for the new undertaking, a great advantage would be gamed; and that this motive has been largely operative railway history abundantly proves. Once commenced, sundry otlier influences conspired to stimulate this making of feeders and extensions. The non-closure of capital accounts rendered possible the 'cooking' of dividends, which was at one periO'd carried to a great extent. Under various incentives, speculative and other, expendi- ture that should have been charged against revenue was charged against capital; works and rolling stock were allowed to go unrepaired, or insufficient additions made to them, by which means the current expenses were rendered delusively small; long credit agreements with contractors permitted sundry disbursements that had been virtually made to be kept out of the accounts; and thus the net returns were made to appear much greater than they really were. Naturally the new under- takmgs put before the monied world by companies whose stock and dividends had been thus artificially raised were received with proportionate favor. Under the prestige of their parentage their shares came out at high premiums, bringing large profits to the projectors. The hint was soon taken, and it presently became an established policy, under the auspices of a prosperity either real or mock, to get up these subsidiary lines — 'calves,' as they were called in the slang of the initiated — and to traffic in the premiums t^eir shares commanded. Meanwhile had been developing a secondary set of influences which also contributed to foster unwise enterprises; namely, the business interests of the lawyers, engineers, con- tractors and others directly or indirectly employed in railway construction. Thus partly from, the jealousy of rival boards, partly from the avarice of shareholders m purchased lines, partly from the dishonest schemings of directors, partly from the manoeuvres of those whose business it is to carry out the projects legallly authorized, partly, and perhaps mainlv, from the delusive appearance of prosperity maintained by many established companies, there came the wild speculations of 1844 and 1845. "Before proceeding to analyze the exiting slate of things, we would have it clearly understood that we do not suppose those implicated to be on the average morally lower than the community at large. Men taken at random from any class would in all probability behave much in the same way when placed in like positions. Ut the engineers, parliamentary agents, lawyers, contractors and various others concerned, it may be admitted that tho daily custom has induced laxity of principle, yet they would be harshly judged were the transactions that may be recorded against them used as measures. Those who do not see how, in these involved attairs, the most inequitable results may be wrought out by men not correspondingly flagitious, will readily do so on considering all the conditions. In the first place tnere IS the familiar fact that the corporate conscience is ever inferior to the individual conscience— that a body of men will commit as a joint act that which "^/?6-J"t''' " of them would shrink from did he feel personally responsible." . ''' >.,," '"^? publicly complained in the upper chamber that "it was nearly impossible to bring together a jury some members of which were not interested m the railway they were about to assess." Lessons from Other Lands. 285 to the same end. It is not to be expected that the accumulation of such individual actions should leave the legislative policy unchanged. Hence the fact, that the influence once used to throw out railway bills is now used to carry them. Hence the fact, that railway committees no longer require a good tralRc case to be made out in justification of the powers asked." Later Spencer speaks of the still increasing community between rail- way boards and the House of Commons. "There are 81 directors sitting in Parliament; and tho some of these take little or no part in the affairs of itheir respective railways, many of them are the most active members of the boards to which they belong. We have but to look back a few years and mark the unanimity with which companies adopted the policy of getting themselves represented in the Legislature, ito see that the furtherance of their respective interests was the incentive. How well this policy is understood amongst the initiated may be judged from the fact that gentlemen are now in some cases elected on boards simply because they are members of Parliament. Of course this implies that railway legislation is affected by a complicated play of private influences." The railways, I was told in England, still have a large num- ber of their directors in Parliament and others who are large shareholders. They cannot, of course, control legislation com- pletely. They cannot secure all that they desire nor prevent the passage of all the laws they do not like. But they have sufficient influence to keep Parliament from passing an)^ very drastic legislation, and to secure such modification or amend- ment of anti-railroad bills as may make them comparatively innocuous. Even in the days of the Gladstone Purchase Act, tho the companies were much weaker than they are to-day, "every provision of the original bill that was supposed to make against the companies was stricken out." They have now become powerful enough to resist serious interference. Tho the powers of the Board of Trade and the Railway Commission have been considerably increased, they are no match for the railway companies. With So or 60 votes in the Commons, the Prime Minister naturally deals with the railways, if he has to call their management in question, as a tender mother does with her wayward children. "Is it quite fair for Parliament to fix the rates without the consent of the railroads?" I asked the head of a great business house in London. "Oh," said he, "you do not understand the relation of our railways to the legislative authority. The railways can make Parliament do whatever they like except when the banking and commercial interests that are still stronger are opposed to them. Even the traders and farmers, with 'all the influence they can bring to bear, have not been able to accomplish very much against the railways." 286 The Railroad Problem. The Postoffice, tho making far better terms on the whole than our government makes with the railways, still pays a good deal more than is fair for the carriage of the mails. On parcels the railways get 55 percent of the receipts for the smaller share of the work, and the general mail charges have been found so excessive on some short routes that the PostofKce concluded to go back to coaches and carts, and saved in this way on one route for which I have the figures some $7,200 a year. The companies say the mail rates do not remunerate them. But they said the same thing over forty years ago, whereupon the authorities proved that "the companies received four times the amount paid to the mail coaches for similar service, so the companies' testimony on this point is either erroneous or else they are so inefficient that the trans- portation of a given weight of mail costs them over four times as much as the transportation of the same weight by wagon." The British railway capitalization stands at $326,000 a mile for England and Wales, and $270,000 a mile for the whole United Kingdom," the highest national average in the world." (") Railway Returns to Parliament, 1905, p. XXVIII. (*^) This is partly due to the excessive cost of land, the large cost of stations and track, the avoidance of grade crossings, etc., and partly to the excess of capital above real values caused by legislative expenses, stock bonuses, purchases of land, etc., at exorbitant prices, and other methods of inilation. Acworth tells me that when an I^nglish engineer estimates the actual cost of a line as $100,000, he knows he can't get par for stock, so he asks for $200,000 capital for the road, and $66,000 more to cover legal and legislative expenses of organizing and launch- ing the company. So $266,000 in securities are issued on a $100,000 road at the start, and afterwards, when improvements are to be made, further water is injected. Ordinarily parliamentary expenses have varied from $3,000 to $15,000 a mile. In one contest $280,000^ was spent among 6 counsel and 20 solicitors. For one com- pany, legal and parliamentary expenses reached the sum of $2,400,000 in 9 years, averaging $260,000 a year. It is estimated that legal and parliamentary expenses in connection with organization, franchises, etc., have cost English companies something like $500,000,000. (In 1850 Mr. S. Laing, chairman of the Brighton & South Coast Railway, stated that up to that time parliamentary and legal expenses had absorbed not less than $350,000,000. Writing again in 1886, he said that for the previous 10 years the companies had spent $25,000,000 in the same way. And Edwards estimates that down to 1898 the total railway cost for railway and parliamentary expenses had reached $450,000,000. This does not include the expenses of litiga- tion in the courts or before the Railway Commission.) Enormous sums were paid to landlords for the right of way, and to quiet their opposition or obtain their support the London & Birminghami conciliated its opponents by raising the estimate for land from $1,250,000 to 3 times that sum. The companies commonly paid for land and damages sums varying from $20,000 to $40,000 per mile. In many cases they paid $200,000 to $400,000 a mile for land. In one case $600,000 was paid for land worth only $25,000. Mr. Joseph Locke declared some years ago that landlords had received from the railways $400,000,000 more than a fair value for their land. In one case the heir returned as conscience money the greater part of what the railway had paid his father. Jeans says that for the purchase of one 323d part of the United Kingdom our railways have paid about one-twelfth of the estimated current agricultural value of the whole land of the country." (Railway Problems, p. 35.) Land and law were not the only things that lifted English capital above the level of real values. Manipulation of stock and other secret transactions helped in the same direction, tor example, the directors of one line allotted themselves thousands of new shares, then at a premium, one of them using the company's funds to pay deposits and calls to the extent of $400,000. One railway chairman with the secretary's connivance, retained shares exceeding a million in amount' intending to claim them if they rose to a premium; but as they did not left them on the hands of the proprietors, to their vast loss. In one company zyi millions of capital was put down to unreal names; in another, directors bought for account more shares than they issued and so forced up the price; in others they purchased for the company their own shares, paying themselves with the depositors' money. Lessons from Other Lands. 287 The secrecy of English accounts is such that less is known about the inside workings of the roads than in any other country. The railway managers are rather slow, and in many ways, except on the best through routes, the service is not up to the standard of the railways in our northern and western States, nor to the service on the German roads. The track is good and the provisions for safety, so far as concerns grade crossings, the block system, etc., are excellent. But the secretary of the Board of Trade told me there was no automatic coupler in England, which railway managers explain by saying that their cars were built for side strain and could not stand the center shock. So it was a question of rebuilding their rolling stock. The toy freight cars^' half or quarter loaded, the motley freight trains made up of all sorts of cars, many of them marked with the names of private owners, rem- nants of the early system of having shippers own their own cars ; the stations plastered all over with a mob of flaring red, green, yellow, blue and white advertisements ; the bituminous smoke let to run wild and the piercing shrieks of the shrill engines whose musical and artistic education has been wholly neglected, and who are very unhappy in the service judging by the tone of their remarks, a condition in which I heartily sympathize with them; the compartment cars with half the seats back to the engine, most of the passengers far removed from the windows, no opportunity for ventilation except by direct draught from the window with a splendid chance of catching cold; no means of warming the cars except by long tubes of hot water on the floor, called foot warmers, and many times not even this ; no chance to get up and walk about, not even a drink of water to be had in a five or six hour ride; and guards that carefully refrain from announcing the stations, so that passengers must often rely on intuition to know where they are, or else call out of the car, or get out to inquire (the only way to open the door in order to do either of these things being to let down the window and reach way down and out to the handle, a process which in and many other transactions equally shady. (Herbert Spencer's "Railway Morals and Railway Policy," pp. 4-14.) The railway returns to Parliament, 1905, state that $940,000,000, included in paid-up capital, represented nominal additions of capital, dividends and conversion of stock. English railway m-anagers, in answer to my questions about depreciation, said: "No, we do not write off depreciation, but we put in new engines worth, perhaps, .■?,ooo pounds apiece instead of worn out locomotives costing 2,000 pounds apiece. The extra 1,000 pounds come out of operating expenses, and that helps a bit toward depreciation." The secretary of the Traders' Association says that English capital is largely in excess, but no one knows how much. (") It is only fair to say that English railway men declare that the retail nature of their business and their short hauls make small cars more useful than big ones; but it is also fair to say that they are gradually introducing larger cars and that they are proverbially slow about adopting improved methods, excusing themselves in one way or another as in case of the automatic coupler. The English roads have not even adopted the baggage check. You must trust your trunks to the transfer man, or go with them to the station and there you can have them "booked" and get receipts for them. Baggage is handled promptly and carefully and loss or delay is very rare, but there seems to be no good reason for the failure to adopt the great convenience and labor saving device of the baggage check. 288 The Railways, the Trusts, and the People. cold weather is anything but comfortable for the passenger in question, or for his fellow prisoner in the same cell, called by courtesy a com- partment), — such is a picture of railway travel in the ordinary English trains. At the close of my journeyings, after weeks of experience on English railroads, I wrote in my note book : "After suffering the rail- way accommodations of England I hardly think the continental roads, even in Italy, can have any terrors for me." Some Englishmen pretend to like the English service (of course I am speaking of the service on ordinary local trains, not on the best through trains, which are excellent), but they pretend also to like their execrable climate and their uncivilized newspapers which are unable to think of anything to put on their front pages except advertisements. Habit will make a man like almost anything. A New England Yankee will eat pie three times a day, with porky beans and brown bread the rest of the time, and never dream that he may be regarded by other people as a dietetic idiot; and an Englishman with equal absence of cerebral manifestations will be content to ride in a sardine box, warm- ing himself with a tube full of tepid water at his feet. Now and then you will discover an Englishman who will admit that it is not always convenient to ride long distances without opportunity to visit a toilet room; and that even in the better cars which have a toilet room for each two compartments, a great deal of space and cost is wasted by a method of construction that requires 3 or 4 toilet rooms to a car. Bernard Shaw, the finest of the Fabians, said : "The railways are very badly managed and the service is awful." Robert Blatchford told me that coming from Birmingham the preceding winter he had caught a dreadful cold because there were no foot-warmers in the cars, and there was no chance even to get a bite to eat on the way. Another leading citizen, a conservative business man of London, said that there was deep dissatisfaction with the railways, that rates and fares were outrageously high, that prominent engineers had declared one cent a mile a sufficient charge for the passenger traffic instead of double that sum, but that it did not seem possible to exert any effective control. A well-known resident of Finchley, 7 miles out of London on the North London and Great Northern road, declared that it took the "fast trains" 35 minutes to go that short distance and that he usually had to stand all the way. A gentleman from another suburban station said he hadn't had a seat for three months. A director of the Co-operative Association of Woolwich, living 9 miles out from the Cannon Street Station, London, said that 20 or 30 years ago the fare was 12 cents one way and 16 cents for the round trip, while now the charge is 18 cents one way and 28 cents for the round trip. And so I might go on for an hour or more. My notes are full of such state- ments, but enough has been said to show the lay of the land. In one respect travellers in Great Britain and other European coun- tries enjoy facilities that could not be obtained in the United States except at large cost or through the influence of a "pull." If eight or Lessons from Other Lands. 289 ten or more are travelling together a special car may be secured without extra payment, so that the party may travel together and have the whole car to themselves. Even on short notice an ordinary coach or com- partment may be thus reserved, and on sufficient notice the party may secure a saloon car having two or more compartments opening into each other. For example, on the journey I have just made (May, 1906) from Queenstown to Dublin and Belfast en route to Glasgow as a mem- ber of the National Civic Federation Commission on Public Ownership, we had a saloon car to ourselves without extra charge, altho there were but thirteen in the party during the first portion of the trip (as far as Dublin). The small cars and the compartment system enable European railways to give these facilities to parties, while our railroads could not afford to reserve one of their big cars for a little group of passengers. The principal lesson of English railway history is that powerful railroad interests left in private control cannot be satisfactorily regxilated by law. No government in the world has tried harder to control a private railway system in the public interest. For over 60 years the English Parliament has striven to secure safety, to stamp out discrimination, prevent excessive charges, and control the exercise of railway power. The result is a degree of safety superior indeed to ours, but by no means equal to that attained by the State railways of Ger- many and Belgium ; discriminations and excessive rates are still in abundant evidence, and a general dissatisfaction so great that Acworth, the classical English writer on railway subjects from the railway standpoint, corresponding to Professor Had- ley in this country, told me a few months ago that "9 out of 10 people in Great Britain would vote for public ownership of railways if the question were submitted to a vote tomorrow." This testimony is especially weighty from the fact that Acworth himself is not a believer in public ownership, but on the con- trary is practically ■ identified with the best corporation view of things in England. Among the difficulties in legislative control of railways that are often overlooked are: (i) That, as Acworth says, "For every shilling cut by an expeditious tribunal off a rate it is easy for the railway companies to withdraw two shillings worth of facilities. (2) For a merchant or farmer to undertake to fight trained railway experts with a life-time's experience and with every fact and figure at their fingers' ends is only to court defeat." (3) "Even when a decision goes against a road it is 290 The Railroad Problem. easy for it to retaliate by measures which no control can pre- vent unless it were prepared to take upon itself the entire responsibility of the detailed management of the line.'"" "We do not like to quarrel with a railway company," said a large manufacturer, "and this very fact goes far to nullify any legislation that may be advanced for the protection of the public against the companies.'"' So far as the effort at legislative control has been efifective, it has tended to hinder development and prevent many reduc- tions of rates that would otherwise naturally have been made. An intelligent railway manager under ordinary circumstances lowers rates whenever he thinks he can increase net profits by so doing. But if the low rate he makes in any case to build up traffic is in danger of being taken as a precedent for compul- sory reductions in other cases more or less similar, except that the increase of net profits may be absent, the manager looks upon reductions in much the same way that a maiden lady regards dynamite and other dangerous explosives. So with extensions and improvements — if you control railway rates on one hand and require large expenditure to avoid grade crossings, provide safety appliances, frequent trains, etc., on the other, a time may come when capital will not flow into rail- ways as it ought and railway managers will lose the enterprise that ought to characterize them. You cannot expect a man to invest his money in a business and then let you manage the business for your own benefit. Acworth says: "Parliament, we all know, is omnipotent ; and Parliament can compel existing companies to reduce their charges and increase their working expenses simultaneously. But what Parliament cannot do is to compel the investment of fresh capital in British railways ; and till it can do the latter, it would perhaps be wise, in the public interest, not to attempt the former." If regulation goes far enough to secure the public against abuse, it is likely to take the life out of the business. Even control for impartial justice wages an exceedingly difficult and doubtful battle against pri- (-») The last sentence is from Mr. S. Laing, chairman of The Brighton Railway, Fortnightly Revietv, 1886. (") J. N. Peake in Staffordshire Sentinel, July 30, 1888. The Midland Railway has been known to increase the cost of traffic by 100 percent on the business of a firm that brought complaint against it. In one way or another retaliation is almost certain, and so the enforcement of law is discouraged and killed in detail. Lessons from Other Lands. 291 vate interest armed with the power of possession and man- agement and protected by the armor of secrecy. BELGIUM. The railroad history of Belgium is in vivid contrast with that of England. The first railways were built by the State, begin- ning in 1833 and opening the first line in 1835. The Govern- ment laid out the roads on the broad lines of a carefully con- sidered national system of transportation on plans drawn up by George Stephenson, who was employed by the Government for this purpose as being the greatest railway engineer of the age. After the principal routes had been occupied by the State rail- ways, concessions were granted to private companies for branch and connecting lines and later for lines that came naturally into competition with the Government roads.^ For twenty years, from 1850 to 1870, the Government pur- sued the policy of a State system in competition with private railways, the only kind of competition that does not lead to combination against the public. The companies consolidated into powerful systems and the competition between the public and private roads was very earnest. The Government began the main battle in 1856 by making great reductions in rates."'' A (^) The custom in giving concessions to railway companies was to grant a 90 year franchise, the land to be acquired in the name of the State and the lines to become the property of the State at the end of the term as part consideration for the grant, the State to pay for the rolling stock at the time of transfer but not for the road or stations or any of the fixed property. (^^) On page 214 of his Railroad Transportation, President Hadley says; "With the year 1856 began a period of railroad wars. So far from exercising a dominant influence in railroad tariffs, the State was for the time being completely powerless against the current of events." This does not give a correct impression of the facts. The Government began the reduction policy and continued it, and tho the companies for a time tried to sicken the Government of the policy by cutthroat measures, discriminations and special rates, to capture the business, compelling the adoption of special rates by the State roads to some extent to meet the guerilla warfare, yet substantially throughout the contest the State roads held the real control of the situation and determined the tariff policy of the country. Chas. Francis Adams makes a much more accurate statement of the case than Hadley. I quote from "Railroads, Their Origin and Problems," pp. 96-99, dealing with Belgian history: "The one system of lines being owned by the State and the other by private companies, no consolidation of the two was practicable as against the public; and accordingly the Government found itself in a position to regulate the whole system through the ownership of a part of it, and in consequence was able to establish a policy of cheap railroad transportation, under the influence of which the country developed with amazing rapidity. The action of the Govern- ment, however, practically forced the various independent companies to unite among themselves, until, about the year i860, they had become consolidated into trunk lines sufficiently powerful to compete with the State on equal terms. These private companies operated their roads with the utmost freedom from govern- mental interference. . . . Belgium has simply presented the spectacle of the State, in tlie character of the richest and most powerful railroad company of its system, holding in check and regulating other companies, not greatly inferior to it in power, wliich compete with it for business and with which it deals on terms of equality. Tlie effect of this on each system of roads has been excellent. At times, when the Government has attempted certain great measures of reform or bold experiments in transportation, its course has been vehemently criticised by the 292 The Railways, the Trusts, and the People. system of special rates was introduced, with the result that both traffic and receipts increased in an astonishing ratio. In 1861 the reductions were extended, and a regular sliding scale of charges, decreasing according to distance, was put in force, being applied at first to the lowest and roughest class of goods. The result was an immediate increase of 72.4 percent in the tonnage of the goods on which the reductions applied, and the entire traffic rose 11.6 percent. The increase of traffic in the half year was equivalent to the average increase of three years preceding. The next year the low sliding rates were extended to all goods of the third class and a reduced scale was put in opera- tion for the second class. The increase of tonnage in the eighth year of the experiment was 106 percent. This increase was practically on the same mileage, as only about thirty miles had been added to the State lines. The Minister of Public Works summed up the general result of the eight years from 1856 to 1864 as follows : "(i) The charges on goods have been lowered on an aver- age by 28 percent. (2) The public have dispatched 2,706,600 tons more, while they have economized $4,000,000 on the cost of carriage. (3) The public treasury has realized $1,125,000 more after having paid the cost of working and interest on capital." In 1864 still further reductions were made with results exceeding even those just stated, the tonnage rising from 4,479,000 tons in 1863 to 6,533,000 tons in 1864. In the next seven years (1864-1871) the goods traffic more than doubled, and in the following twelve years down to 1883 it doubled again. Comparing these results with those obtained in the United Kingdom for the same periods we find the Belgian increase 113 percent in the first period against 68 percent for the English traffic, and in the second period 96 percent against the English 57 percent. private companies, who have complained that their property was being unjustly depreciated by tariff reductions made upon unsound principles, but which, from their position, they were compelled to adopt. This was perfectly true- but in the long run the private companies have found that the experiments of Government were far less to be feared than the wild and ruinous fluctuations of railroad com- petition, as it was carried on in Great Britain. These they were exempt from. The competition they had to meet was decided, but of a wholly different character. It was certain, firm, and equably distributed. Those managing the State roads acted at all times under a heavy sense of responsibility; they did not dare to show preference to persons or localities; they could not do business for anything or nothing one day, and the next combine against the public to make good their losses through extortionate charges. In a word, it was found that while the com- petition between private roads in Great Britain and America disturbed and dis- organized railroad traffic, that between public and private roads in Belgium regu- lated it. o & Lessons from Other Lands. 293 In the early sixties the average freight rate in Belgium was reduced to 1.3 cents and the passenger rate was still lower. The reduction of rates in the merchandise field was so successful that public opinion demanded the extension of the principle to passenger rates, and in 1865 the Government established a zone system. For distances less than 22 miles the old rates of 1.2 to 2.5 cents a mile were retained; in the second zone from 22 to 49 miles considerable decreases were made ; and beyond 49 miles large reductions were made, rapidly decreasing the mileage-rate so that for distances beyond 155 miles the fares were less than one cent a mile for first class, and for third class less than half a cent a mile. The reductions brought the fares down to about one-third of the former rates. The Belgian first class fare became less than one-half the English third class, the second class less than one- third of the English third class, and the third class less than one-fourth of the English fare. "The year after the reductions in Belgium, the increase of passengers in the zone where no change was made was 2 percent; the increase where the provisional reduction was made was 20 percent; and where the large and definite reduction was made it was 92 percent.'"* By 1880 the average receipts from third class passengers had fallen to 12 cents, yet the receipts per train-mile and the profits had increased. The average fare per passenger now (1905) including all classes is 10.88 cents, or three-quarters of a cent a mile, for the average journey. In 1870, after twenty years' experience with public and private roads, side by side, the Government decided to take over the private lines. The franchises under which the private railways were constructed were, as already stated, for 90 years, at the expiration of which the railways were to become the property of the State on payment for the rolling stock only, and the right was also reserved to buy the roads at any time on paying for the unexpired balance of the ninety-year term an annual sum equal to the average net earnings for the seven years preceding the taking. The companies were given the utmost freedom in the operation of their lines. They raised and lowered rates at discretion and no limitation was put on the dividends they might declare. Except in the cases of a few subsidized or guaranteed roads, the Government did not supervise the accounts of the private railways or require them to render any. Only in respect to questions of police and safety was there any interference by the State. With this free system of private roads the Government came into daily vigor- ous competition for many years. The public roads gave impar- («) Waring, p. 20. 294 The Railroad Problem. tial treatment to all. They showed no preference for persons or localities. Their rates were certain, firm and equitably dis- tributed. The companies, on the other hand, gave secret favors and had recourse to personal discrimination and undue prefer- ences of various kinds. The Government roads were the best managed. The service was the cheapest, most regular and most satisfactory in every way, both to business interests on the whole and to the public. The conclusion that it was best to unite all railways under public management was not the con- clusion of an autocratic Government, but was the decision of the people after long and thorough experience with both sys- tems. Belgium has a free constitution, and public opinion has ample means of making itself effective in the government of the country. Large purchases were made in 1871-3, and by 1874 the Government had J^ the railways in the country ; in 1880 it had 2/3 ; in 1885 it had % ; and now, in 1905, it has over }i of all the railways,"' and the general inspector of Government rail- ways informs me that the only remaining line of any great importance will be taken over as soon as the franchise expires. The financial results were unsatisfactory at the start. For the first fifteen years there was a deficit. After that the roads began to make a profit, and by 1872 the profit on the State lines was 6 percent on the total expenditure to date. In 1882 the profit on the State lines was 5.62 percent, and 5 percent on private fines. The profits now are 4 3/10 percent. The total expenditure on the roads operated by the State has been $429,000,000, the receipts $1,042,690,000, and the profits $251,000,000. The direct financial gains constitute the smallest part of the benefits the State railways have conferred upon the country. The Government has always treated the question of earning a profit as entirely secondary to the development of industry, the promotion of prosperity and the (2^) The following table shows the movement of public and private mileage down to 1903: Miles of Railway. State. , Companies. 1S50 390 166 j86s 469 950 1870 543 1400 1885 1983 780 1905, • • •, : 2538 331 In 1835 the Government had 9 miles, in 1840 it had 203 miles. Hadley says that "the State stopped building railroads in 1850. For nearly twenty years the Government system remained all but stationary with a length of about 350 miles." (Railroad Transportation,^ p. 214.) This is not correct. The State roads rose from 390 miles in 1850 to 446 in 1856, and 469 in 1865, and 543 in 1870, The company's lines were extended more rapidly, but the Government system did not remain stationary during this period, and it was not about 350 miles at any time in 1850 or afterwards. (See table, p. A 96, Report of the Belgian Minister of Railways, 1905, stating the length of the State lines for every year from 1835.) Lessons from Other Lands. 295 service of the public. The policy has been to use the surpluses for reducing rates, extending the lines and increasing, facilities.^ If the indirect financial benefits and contributions to the general prosperity due to the wise pohcy of the Government roads could be calculated and added to the direct financial gains, it would be found that the State rail- ways had returned to the people in money values many times their cost, to say nothing of the moral, political, social and civilizing values of an honest, open, enlightened, public-spirited management of the public highways. Wages are very low on the Belgian roads compared with the standards in this country; but the cost of food and clothing and other items of living expense is also much lower there than here. I got the figures from the departments and then talked with the men at the stations and on the trains and at the Gare du Nord, or North Station, where 250 trains come in and 250 trains go out each day — a train every two minutes at the busy times. I was told by the engineers that they worked eight or nine hours a day as a rule, with twelve hours as the maximum, and that engine drivers got $20 a month at first, with $50 a month later and premiums for promptness and care, which would increase their wages something like 50 percent or more, making a total of $35 to $70 a month. For example, one engineer told me his regular salary was $24 a month and the premiums brought it up to about $40 a month. Each time a driver brings his train in on time he gets 10 cents if it is a fast express and 5 cents if it is an ordinary train. Premiums are also given for economy of fuel and oil. Some of the officers would like to see the railways in the hands of private companies, for the companies pay higher salaries ; but the bulk of the workers think differently, for the Government pays higher wages to common labor than private com- panies in the same country, and works the men shorter hours. Discrimination between individuals is unknown. Complete publicity is secured under State ownership and secret rebates or other unfair practices are impossible. No serious trouble with the "patronage" or other political difficulties have been experienced. There have been complaints at times about the lack of cars, the running of trains, etc., but "nothing which will compare with those constantly made both in Great Britain and in America. Tp satisfy every one always is a result not likely to be attained under any system or in any country ; meanwhile, it may with tolerable safety be asserted that the Belgian system is as satisfactory to the people of Belgium as the nature of things human (28) For its area Belgium has more miles of railway than any other country in the world and the lowest rates in Eurone. This result is due largely to the policy of investing the surplus railway earnings in extending and cheapening trans- port, or the policy of using the railways for the promotion of industry and the public good, which policy State ownership alone is able consistently and completely to carry out. The control of Belgian railways is vested in a Central Council of Admmistra- tion, of which the Minister of Public Works is President, the Director General of Railways is Vice-President and the six Inspectors-General are members. The guid- ing principle of management has been that "while keeping a strict eye upon expenditure, and maintaining the financial equilibrium, the railways should be used for the general national welfare, both by the extension of railway transport to increasing numbers of the population and by cheapening it to all." 296 The Railways, the Trusts, and the People. permits it sliould be,"^ a statement that is as true to-day as when ex- President Adams penned it years ago. * President Hadley of Yale University, who is decidedly opposed to Government ownership, says: "In judging the railroad policy of Bel- gium by its results, all must unite in admitting that they are in many respects extraordinarily good. What their averages are, we have already seen. The passenger rates are lower than anywhere else in the world, except, perhaps, on some East Indian railroads. The freight rates are much lower than anywhere else in Europe. Nominally they are about the same as in the United States. "Their classification is also excellent. They have now got matters into such shape that the schedules themselves (which go quite into details) furnish a system of rates adapted to the wants of different Hnes of business and of different localities. What their rates have done for the development of business is strikingly seen in the history of the port of Antwerp, which is rapidly outstripping the somewhat similarly situated French port of Havre — a difference which is thought to be largely due to the different railroad policy of the two countries. "It is also true that they make a great deal of use of their investment. The average car-load is higher than in either Germany or France, tho the construction is the same. The high percentage of expenses to earn- ings, which is often quoted against them, is really, prima facie, in their favor. If a country where the state has a virtual monopoly of railroads shows too small a percentage of operating expenses, it gives good ground for the belief that rates are unnecessarily high, and that indus- trial interests are being sacrificed to financial ones."^ The English writer Chas. Waring says : "The advocates of State railways are entitled to take credit for the fact that, side by side with State administration and the successive reductions of rates and fares, the country has developed a degree of material prosperity unequalled by any other nation of similar area, population, and resources in the world."=° Sir H. Barran in an English official report says : "It is certain that if managed solely as a commercial enterprise, the Belgian State rail- ways would not have proved such a stimulus to national prosperity." The Massachusetts Railway Commission in its second and third reports (1870-1871), when Chas. Francis Adams was a member, described the policy of the Belgian Government railways and its effects and urged upon the Legislature the advisability of "the purchase by the State of the Fitchburg Road with a view to its ultimate consolidation with the Troy & Greenfield road, including the Hoosac Tunnel, which is now the property of the State ; thus making a connected line of road from Boston to the Hudson to be managed in the public interest by trustees selected by the Legislature and affording a fair trial of the experiment of a public State road." C^^) Origin of Railroads, Adams, p. 100. (^) Railroad Transportation. Hadley, pp. 216-217. (^") State Purchase of Railways, by Chas. Waring, pp. 24-25. Lessons from Other Lands. 297 "The remarkable success," said the Commission, "which has attended the trial of similar experiments on the State roads of Belgium, has been described at some length by the Commisssion. The Commission can see no reason why results of the same nature should not be arrived at through a similar process in Massachusetts : the industrial condition of the communities is certainly not unlike." There is quite as much reason to-day as when our Massachusetts Commission wrote these words to believe that we may learn some valu- able lessons from the purity, efficiency and cheapness of the Belgian administration of the railways as a unified system of public highways operated in the public interest. FRANCE. France did not adopt either the competitive theory of Eng- land or the State system of Belgium, but a sort of quasi-part- nership between private companies owning and operating the roads, and the Government contributing funds, guaranteeing dividends, exercising extensive supervision and control, pro- 'viding for State participation in surplus profits, and reserving rights of purchase and reversion on terms generally regarded as advantageous to the public. The development of the French system was very slow. While England and Belgium, Germany and the United States were building railways, France was trying to overcome the inertia of private capital and reason out a proper plan of procedure in the long series of debates, 1833 to 1842, especially in the last six years of that period.* Nothing was really settled till 1842, almost a decade after Belgium began to build her State lines. Then the Government definitely took the lead. A plan proposed by Thiers was adopted. A national railway system was to be built, the State undertaking the earthworks, masonry and stations, and one- third of the land. The departments (corresponding to our States) were bound to pay by instalments the other two-thirds of the land cost, and the companies were to lay down the rails, (^) The success of the Manchester and lyiverpool road, completed in 1830, pro- voked some railway building in France, especially lines from Paris to Versailles and to St. Germain. But in 1837 only 85 miles had been opened against nearly 500 miles in England. Not until the great trunks had assumed definite shape in Great Britain and the United States did France begin to move in earnest, and then the first attempts met with failure. The Government wanted to build and operate an extensive system of State railways, but the Chambers threw out the scheme and granted concessions to private companies for lines from Paris to Rouen, Havre, Dieppe, Orleans, and Dunkerque, 1837-8. But the public did not respond to the call for stock subscriptions, and the companies abandoned their concessions in 1839 for lack of funds. 298 The Railroad Problem. maintain the permanent way, and find and work the rolling stock. After 40 years the whole was to revert to the State/ Nine great lines (seven radiating from Paris and two pro- vincial) were laid out by first-class engineers on a carefully considered national plan, avoiding parallel lines and waste of capital. At last public confidence was won. Roads were built, shares rose to 50 percent premium, and by 1848 a total of 1092 miles had been opened. The crisis of 1847-8 compelled the Gk)vernment to assume the operation of several of these roads in order to prevent the complete cessation of traffic. The Empire came in at the close of 185 1. Under Napoleon III the railways were consolidated into six great systems," each with a distinct territory; their charters were prolonged to 99 years from the date of the extension, and a complete system of Government regulation and audit was provided. The amalgamation policy, extension of franchises, etc., stimulated railway building, and from 185 1 to 1857 the railway mileage rose from 2,124 to 4,475 miles, or more than doubled."* The building had been too rapid, and the panic of 1857, known as "the railway crisis of 1857," was the result. Construction practically ceased, and it did not revive even after the panic had passed. The companies had built the lines that gave promise of large profits. Each had a monopoly in its own district and did not feel called upon to put out branch lines to develop outlying business, which must prove less profitable than the through traffic or the local business of the more populous routes their railways followed. This district mo- nopoly is the main characteristic of the French railway sys- tem. England represents the theory of private competition and Government regulation. The French idea is private mo- nopoly and Government regulation. (2) Such provisions were entirely wanting in the earliest French charters Up to 1833 the charters reserved no right to the State and contained practically no restrictive features. A very simple schedule of rates was used and the enterprise was left in the hands of the company. In 1833 Frederick I,ist elaborated a complete system of French railways, which, however, did not seem to be within the resources of the State. But the Govern- ment was sufficiently interested to appropriate 500,000 francs for the study of railways. In 183s elaborate conditions fixing the powers and duties of the companiiea began to be inserted in the charters. (S) Some 30-odd companies had been chartered; soon after the accession of Napoleon III there were only 11 systems, and a little later only 6, five of them radiating from Paris and the sixth in the extreme south. (•") England at the same time had opened 9,037 miles. Lessons from Other Lands. 299 New lines were needed for the development of the country. Three ways were open : the State could build the lines, or grant concessions to new companies, or induce the old companies, the "Big Six," to under- take the new construction. France was not ready for government ownership. Railway competition was entirely foreign to French policy. And the Government and the Big Six agreed that the State should offer the old monopolies such inducements as would lead them to under- take the new construction. An understanding was reached in 1859. Bonds for $600,000,000 (the estimated cost of the new lines) were to be issued at 4 percent interest guaranteed by the State." On these con- ditions and others stated in the note, the six great companies undertook to build about 1,000 miles of new line each. In addition to the rever- sion to the State at the end of the 99-year term, on payment for the rolling stock less advances, the Government reserved the right to pur- chase the roads at any time after 15 years on payment of the appraised value of the rolling stock and the payment for the remainder of the franchise term of an annuity based on the net earnings of the 7 years preceding the purchase. The new lines were built as agreed, and then railway development slowed up again. The outlying districts demanded railways, and as the companies would not build them they asked the privilege of doing the work themselves. So the railroad law of July 12, 1865, gave the departments and communes the right to construct local railways or grant charters for them. Up to this time France had not only refrained from encouraging railway competition, but had taken every precaution to prevent it. Now, however, the door was open, and "the contractor, the speculator and the blackmailer made their appearance in rapid succession. Railroads were built to be sold." It was provided that the new roads should be mere local or branch lines, feeders for the big companies, and should not be combined into through routes. But these provisions proved (^) The State also guaranteed .65 percent for a sinking fund to piy off the debt in 50 years from January 1, 1S64, for the Company of the West, and from January i, 1865, for the others. ^ The division of about forty-four millions of the net revenue of the old companies among their shareholders was agreed upon, giving them a guaranteed dividend of 6 to 8 percent. As soon as the net profit of the new lines plus the surplus earnings of the old lines should exceed the interest and sinking funds the companies were to begin reimbursing the State on whatever outlay the Treasury might have made. After January i, 1872, the companies were to share half and half with the State all their revenue above 8 percent on the cost of the old lines and 6 percent on the new lines. The companies were not bound to pay any of the interest on the new bonds out of the profits of the old lines unless these profits were more than sufficient to pay the agreed dividends (the dividends they had been paying) plus the fixed charges. When the companies were no longer in debt to the Government or forced to have recourse to its guarantees they could increase their dividends beyond the agreed percent. Speaking of the system established by the Legislature of 1859 Hadley says: "The system as a whole was more advantageous to the railroads themselves than to the Government or the country. The guarantees of interest made the securities extremely valuable, and lessened the necessity for enterprising management. Some roads paid off their obligations to the Government, and got the full profit from lines which they had themselves run no risk in constructing. Others found it hopeless to try to meet these obligations at all; they then pocketed their guaranteed dividends and let the Government pay interest without any prospect of repayment. ^ The companies were literally in the position, 'heads I win, tails you lose.' " (Railroad Transportation, p. 193.) 300 The Railways, the Trusts, and the People. abortive. A railroad operator named Phillipart got control of a number of local lines, built connecting links, and organized through routes to compete with the big companies. In 1870 the local lines constructed under the law of 1865 amounted to 180 miles; but by 1875, under the stimulus of the Phillipart mania, the mileage had risen to 2,660, with 756 miles more authorized." The Government and the Big Six were alarmed. The nation had a large pecuniary interest in the existing system. "It was in fact under the terms of the concessions a vast sinking fund for the future extinction of the national debt." And it? value was now seriously menaced by that very element of competition which the Gov- ernment had sought most earnestly to guard against. The inherent weakness of big speculations came to the rescue. Early in 1876 Phillipart was broken down in his stock speculations by a general combination against him, and he failed for an enormous amount. The mania for railway building collapsed, and the bankrupt roads were absorbed partly by the old companies and partly by the State, which took over the Southwestern lines to be operated by the Government' Even these experiences did not cure the big companies of their inertia. In 1879 railway development was again a pressing need. As the com- panies would not extend their lines, De Freycinet, Minister of PubHc Works, proposed that the Government should raise $600,000,000 and build the lines itself. By decree of July, 1879, the new lines were decided upon and building began, but the resignation of De Freycinet in 1880 and the strain of financial difficulties stopped the undertaking. For several years there was a battle of debate between the advocates of State ownership supported by Gambetta and the adherents of the com- panies, with no result till the death of Gambetta," in 1883, when it was decided, mainly on financial grounds, that the system of private owner- ship should be continued. In 1883 new conventions with the big companies were made. The companies agreed to build 6,900 miles of new lines. The State agreed to pay for the new roads by annual installments of about thirteen (^) There were 930 miles of completed road, 1,730 miles in process of construc- tion, and 756 miles authorized. These roads involved an estimated cost of $130,000,000. Phillipart got control of several banks, and largely through his agency railroad building became a mania. In the sixties Phillipart had constructed and connected a number of cheap local lines in Belgium to compete with the State lines, and had succeeded in leasing his properties to the Government in 1870 on advantageous terms. His attempt to work a similar plan in France on a still larger scale would probably have suc- ceeded if he had not gone too fast and speculated too heavily. (') The consolidated lines were in two main groups, one in the North which was absorbed by the Northern Railroad, and one in the Southwest which seemed likely to be absorbed by the Orleans Railroad. But in 1877 there was an agitation for State ownership, due partly to the benefits experienced in Belgium and Ger- many from that system, partly to a desire to avoid future dangers from railway speculation, and on the part of some perhaps, to a wish to sell out their stock to advantage, and the said agitation was successful to the extent of taking over the Southwestern group of local lines. (^) Gambetta was to France in many respects what Bismarck was to Germany — the greatest and most far-sighted statesman of his age and country. Gambetta was the mainstay of the movement for State railroads. Unlike Bismarck, he did not live to carry out his policy. When he died, in 1883, the movement lost its strength for the time being. Many who had stood strongly for State management, yielded, when deprived of Gambetta's support, to the plea of financial necessity and agreed to leave the railway system to be developed by private companies. Lessons from Other Lands. 301 millions each for 74 years, or about the middle of the 20th century, when the whole system reverts to the State. The distinction between old lines and new was given up; the State guaranteed each company a minimum dividend equal to the amount it had paid in preceding years; and the State's share in the profits was advanced from one-half to two- thirds of the amount available for dividends beyond certain high per- centages fixed in the agreements." The minimum dividends guaranteed and the quasi-maxima beyond which the State comes in for a share, are as follows : High line Guaranteed beyond which minimum State shares percent. excess. Northern Railroad 13.5 22.1 Mediterranean Railroad 11. 15. Orleans Railroad 11. i 14.4 Southern Railroad 10. 12. Western Railroad 7.7 10. Eastern Railroad 7.1 10. Thus at every step the railroads compelled the Government to accord them some great advantage in return for the de- velopment of railway facilities required in the interest of the pubHc. In 1842 they exacted a subsidy, in 1852 an extension of franchise, in 1859 ^ guarantee of interest on bonds, in 1883 a guarantee of dividends on stock. The French system would seem to be most quieting to the nerves of the companies. They have large dividends abso- lutely guaranteed, and a prospect of very great profits with- out any risk. They enjoy a monopoly " plus a State guaranty of dividends calculated to satisfy anything but an American trust. C) It was farther stipulated that in case of purchase by the State, lines less than 15 years in operation should be valued on the basis of actual cost instead of on the basis of net earnings, and that_ any company bought out should be reim- bursed for supplementary expenses (aside from rolling stock) less r/is for each year since the supplementary_ work was executed, provided such work was done with the approval of the Minister of Public Works. (^°) Insofar as the monopoly_ prevents the waste of capital, it is good; but insofar as it prevents desirable railroad extension and puts the public at the mercy of the companies in the_ matter of service and charges, it is bad. Up to a certain point (A) railway construction benefits both the public and the companies. Beyond (A) for a considerable distance to (B) railway extension beneiits the public but diminishes the present profits and perhaps the permanent profits of the railways, li we keep on beyond (B) we will come to a pointi where additional construction is contrary to public interest and also tends to ruin part or all of the railways involved. Our free competition in railroad building • brings railway enterprise periodically up to or near to this last point, while the French system of guaranteed private monopoly keeps it from advancing beyond the first ^oint, or even reaching it part of the time. The French monopolist has as much inducement to underdo railway construction as the American speculator has to overdo it. 202 The Railroad Problem. Yet the companies are not happy, because the Government keeps such a strict watch over them and insists on "prying into their private affairs." Every time-table and every tariff has to be approved by the Minister of Pubhc Works before it can go into effect. The Government fixes maximum rates subject to the approval of the Minister and the companies make whatever rates they please up to the maxima, which are very high— considerably above the actual rates the companies care to make in most cases. The Minister must approve or reject a tariff as a whole. He has no initiative as to rates nor any detailed power of modification. He can recommend the changing of specified rates in any tariff proposed by a company, but cannot require the company to adopt his suggestions. If he refuses to accept a new tariff the old one continues in force. This system gives the companies a very large measure of control over the tariffs, making all reductions depend on their own initiative and enabling them to secure what they desire in certain directions in return for concessions on their part in other directions. The Minister controls the location of new lines. He must approve all plans and may modify them at pleasure, and construction is not accepted till passed upon by the State Engineers. Every issue of stock or bonds must be authorized, and as the roads must revert to the State the Minister looks carefully after their maintenance." The Minister and his experts also supervise the pay of employees, see that travel is safe, regulate the standards and conditions of rolling stock, and the composition of trains, inspect the road-bed, stations, works, purchases, materials, operation, etc., go through the books and audit the accounts of the railways. In addition to the engineers and other experts of the central office of the department of public works, the Minister appoints a corps of commissioners and sub-commissioners, one or more in large towns (Paris has 6) to see that the Government railway regulations are carried out. In no other country has so complete a system of public con- trol and supervision of railways been developed, and yet the pubHc is very much dissatisfied with the railways. No coun- try I visited, exc.ept Italy, was so full of railway complaints and of agitation for State ownership. One of the highest officials of the Government said to me : "The chief question in France is the purchase of the railways. The majority in the Chamber of Deputies favor it, but the Senate is opposed and the Prime Minister is against it." "Are the railways strongly represented in the two Houses?" C^^) It is provided that, in the years immediately preceding the reversion, the Minister shall have a right to order at pleasure whatever expenditures he deems necessary to keep the roads in good condition till the expiration of their charters. The companies must also accumulate a sinking fund to pay off their stockhol'ders so that the capital may be entirely paid off, for at the end their assets will te reduced to the rolling stock and other movables. Lessons from Other Lands. 303 "Yes, the railways have great influence in the Senate and some in the Chamber." "Is there a railway lobby?" "Yes." "Do the railways bribe legislators to vote in their interest?" "That is improbable. There were rumors of bribery in 1883, but I doubt if the railways have resorted to bribery of representatives. They do not need to. They exert sufficient influence through the presence in the Chamber of a number of large shareholders who are strong thinkers and excellent speakers." "Do the companies get their directors and attorneys elected to repre- sent the people?" "No. A deputy cannot be a railway attorney or officer at the same time he is a deputy, but he can own shares and get dividends, and that answers the same purpose." "Can the railways control legislation?" "No." "Do they have their own way in fact?" "To a large extent, yes." "Do the railways tell their employees how to vote?" "Yes, sometimes. At least it is so charged, and it is believed that they do." The head of the "Cabinet" of the Minister of Public Works said: "Many complaints come to us of high rates and poor service, but few complaints of discrimination. The roads are subject to the supervision of government engineers whose duty it is to inspect the service and carry out the law and require the companies to furnish due facilities. But these engineers are educated at the same schools as the railway men, are their friends and sympathizers, and favor the railways rather than the public. That's what the critics of the system say." "Has the Government required the railways to adopt the safety coupler ?" "The administration cannot require the adoption of safety devices, but can recommend such improvements. The railways have adopted automatic couplers to some extent on passenger trains." The Chief Engineer, however, of the Northern Railroad, the finest road in France, told me that they had no safety couplers, could not put them on their cars, and added : "There are few accidents in France anyway." This railway manager and others did not think the complaints against the railways well founded. They did not think the fact that half the receipts of the railways are profit indicated that the rates are too high. They said that the railways must clear off their capital by 1956. They admitted on the capital question that their capital might not be dimin- ishing on the whole at present because new construction might be as great or greater than the capital cleared off. But in the last years, they 304 The Railways, the Trusts, and the People. said, before 1956, when the lines go to the State, the railways will stop new construction. At the Northern Station in Paris I examined the sleeping cars of the International Company, corresponding to our Pullman Company, and learned that the International Car Company pays the railways 1.6 cents a mile for hauling its sleepers. It's the other way round with us, for our railways pay the Pullman Company 2^/4 to 3 cents a mile for the privilege of hauling the sleepers. Another curious fact is that the French railways not only carry the mails free, hut haul the Government postal cars for .6 of a cent a mile while charging the Sleeper Trust 1.6 cents a mile. With us the railways pay the Sleeper Trust 2'^ or 3 cents a mile and charge the Government m many cases as high as S to 7 cents a mile for hauling railway postal cars in addition to excessive charges on the mail itself. French rates are very high " and, except on the best through trains, the service is very poor, according to our standards. In spite of the monopoly each road possesses in its district, all the big companies have agreed on passenger rates. The average passenger-mile rate is 34 percent higher than in Ger- many, altho the average haul in France is about 30 percent longer, so that the rate ought to be lower instead of higher. Large numbers of working people in Germany, nearly half the low rate travel, go on fares to which 60 percent ihust be added to get the lowest French rate, that for third-class travel. Freights are also higher in France. The average haul is 30 percent greater in France than Germany, and yet the aver- age rate per ton-mile is 10 percent higher." The contrasts (^2) The French tariff is built on the distance principle with a diminishing rate as the distance increases. For example, goods that would take a rate of 8 centimes per ton- kilometre up to lOO kilometres, would take a 6 centime rate between loo and 300 kilometres, and a rate of 4 centimes beyond 300 kilometres. A vast mass of special rates, however, vary the application of the general prin- ciple and often bury it out of sight. (}^) M. Sartiaux claimed that French rates were lower than the German, and to prove it be compared the average rate for all Germany with the average rate for the Northern Railroad for a date two years later than the German rate he quoted. I asked if it was fair to compare the rate for the whole of Germany with the average for the best road in France, the one which has the coal mines and , iron works in its district and carries most of the coal and iron, and especiall|y when the German rate was two years older than the French rate cited. M. Sar- tiaux, who is a most charming man and one of the ablest railroad managers in Europe, promised to make the comparison on the basis I suggested, and send it to me, but he did not do so, or at least I never received it. The average ton-mile rate for France as a whole is 40 percent above the average rate for Sartiaux.'sl Northern Railroad. Yet this celebrated engineer and manager, with perfectly honest intent and without a suspicion of the invalidity of the comparison, put the rates of his coal carrying road and through passenger route on the direct line from London to Paris, against the average for all the German States in order to prove that French rates were lower than German. It is an excellent illustration of the workings of the corporation^ mind, even in the most highly trained and trusted managers. The policy of citing railway figures from Germany and other countries two or three years after the time to which they relate, while the average rates, etc.. Lessons from Other Lands. 305 with Belgium are still less favorable to France. French rates are somewhat lower than Swiss rates, but, considering the mountain grades of Switzerland and the very short haul (less than half that of France), the Swiss rates are really lower than the French. The 137 percent greater average haul in France ought to make a good deal more than the 39 percent differ- ence in the ton-mile rate which now exists. Opinions differ about the extent of discrimination. The first railway manager I asked about secret discriminations said : "There is no such thing in France. The criminal law is very severe, and it would mean imprisonment. There were com- plaints of favoritism a dozen years ago, but there have been none in recent years." Other railway men told me substan- tially the same thing. But very different ideas were expressed by representatives of shipping interests and others. Here are some of their statements : "The railroads hold manufacturers and merchants at their mercy. They favor the great, and put the burdens on the little fellows. The tariffs are full of spe- cial rates, and 80 or 85 percent of these rates are made sim- ply for some favored merchant or manufacturer. The Minister can reject or approve a tariff as a whole, but has no detailed power over one bad rate. If he retires a tariff the old one comes into effect. It is true that complaints are not made. What is the use? The danger is too great. Where is the merchant who dare undertake a campaign against the great companies?" I was assured that the statement of M. Cawes, vol. iv, p. 136, of the "Cours d'Economique Politique," was still true: "The benefit of reduced tariffs is accorded upon secret approaches and solicitations; the companies dispense at their will industrial prosperity and ruin." The discrimina- tion between localities is very great, owing largely to the way in which the railways are laid out. And "the companies de- feat the national protective tariff by letting foreign goods ride more cheaply than French goods. For example, American wheat from Havre to Paris pays 18 francs per ton, while French wheat from Ferte-Bernard to Paris, 37 miles less dis- for the French companies are given right down to date, is habitually followed by the great French railway journal, the Revue des Chemins de fer, partly, no doubt, for the same reason that similar comparisons are constantly made in this country, viz., that it is much easier to get home data down to date; but the effect of the resulting comparisons is none the less likely to be overfair to the home railways. 3o6 The Railroad Problem. tance, pays 20 francs a ton." If the nation desires to favor the importation of foreign products, well and good; but it is a curious state of things for the Government to adopt a pro- tective policy and then permit private railw^ays to reverse, overrule, and nullify that policy. Some of the debates in the Chambers contain very interesting state- ments bearing on discrimination; in fact some of the statements made to me by those with whom I conversed I afterward found in the parHa- mentary records. Chambers of commerce have at times complained loudly of the special tariffs. "All the special tariffs result in favoring some harbor, some industries, some productive center, some manufac- turers at the expense of other localities and other manufacturers." Again: "The special tariffs constitute a dangerous instrument in the hands of the companies, enabling them to accord advantages to favored shippers indirectly. For example, a low rate on minerals will be made from a certain station to another, and there will be near the first station a mine and at the other a furnace." Parliamentary investigations have revealed cases of this sort, and the companies are still accused of using such tariffs. Ministers of Public Works and others high in avithority have recog- nized the special rates as a certain source of abuse." The following passage from the Journal Le Matin, April 13, 1902, is of interest in this connection. "The same names appear in the governing bodies of the railroads, of the mines, metal works, etc. Do you imagine that control of the tariffs in the hands of the managers of coal mines, steel works, etc., is not a precious advantage from the point of view of the whole of their business affairs?" As noted above, the service off the main routes is very poor. Even on the main lines it is not pleasant unless you ride first class at 3 or 4 cents a mile. The French roads sell second-class tickets for long journeys, but arrange the trains so that the second-class passenger must often suffer great inconvenience from changing cars, loss of time, riding at night, etc. This is not true of all the lines, however. The Northern road, for instance, has second-class cars on its fast express trains, which are among the swiftest trains in the world.* (") Journal Official, January 20, 1900; and also February 24, 1886. (*) On the main line from Paris to Geneva, even the best trains are slow, and tlie second class accommodations are very poor altho the fare is higher than our first class. Nothing can make an American appreciate America in spite of its imperfections like a good long trip in Europe. They don't even call out the stations, and they are not well marked or easy to recognize, especially after dark. An American in the compartment with me going to Switzerland said: "If a fellah don't talk enough French to ask what station it is, he is in the soup." He also remarked that "Dogs are allowed even in the first class cars, and in the trams and cafes, -and the dogs are the only things that speak the same language and are as honest and decent as at home." A nice looking Frenchman in the car said: "It is in America you haf ze Poolman cars who are so comfortable." Lessons from Other Lands. 307 The Parliamentary debates in recent years on the question of immediate State purchase are very interesting and instruc- tive. From these, and the reports of various committees from 1880 to 1904, the works of eminent French writers, and from my notes of interviews with railway officials, from the Min- ister of Railways down, and with leading editors, lawyers, business men, members of Parliament, etc., I condense the following facts and arguments : "The French system is wrong because it entrusts public interests to the keeping of those who are acting not in the public interest but in pur^it of private interests. Rate-making is vital to industry and to the government of economic interests, yet this vital power is practically in the hands of speculators and capitalists seeking their own profit. In the economic struggle of modern life the freight rate ensures defeat or victory. The companies' interests differ from those of commerce or of the country. The companies want high rates while the interest of the pubhc and of commerce is that rates should be as low as possible. The companies may and do favor one industry or region or person and ruin others. For the pubhc good the State must be master of the tariff. The State must be master of the tariff in order to secure justice and in order to get the lowest rates. Yet if it is master while the com- panies own and operate the roads, this takes profit from the companies, and takes away the spur to good management. The State must own and operate the roads. That is the only way it can be master of rates justly." "The Government cannot reduce rates," and the companies are very cautious about it, for if they once lower the rates they cannot afterwards raise them again without assent of the Minister." "In vain the companies are told, 'Reduce the rates and augment traffic, and in a little while your dividends will be greater than ever.' They say, 'The present tariff ensures a certain profit; the effect of reduction is uncertain.' " Some of them go further. The managers of one of the big companies said a few years ago : "In the matter of transport tariffs there is only one rational rule, viz.: to ask of merchandise all it can pay." When the companies want a privilege they say : "We are a great interest of the State; witness the budget." But when a concession to the public is asked of them, they say: "We an interest of the State? No, we are a private industry." (15) When a Frenchman speaks of the Government he means the administrative branch; not the Parliament and executive, but the executive part alone. _ Parlia- ment has power of course to raise or lower rates at will, but rarely exercises the power and in fact has not attempted to do more than fix maximum rates. There was a revision of the maxima in 1886 with results very similar to those we have seen in England in 189 1-2. The companies succeeded in raising more rates than were lowered. For exarilple, in the case of the Paris-Lyons-Mediterranean road reductions were made amounting to 5,000,000 francs, while the increase in other rates amounted to 8,000,000 francs, a rise of 3,000,000 francs over the former tariff. 3o8 The Railways, the Trusts, and the People. "The system is not satisfactory either to the pubhc or the companies. Monopoly inflicts high charges on the people, while the constant Gov- ernment inspection and interference is irksome to the corporations. We have all the disadvantages of officialism with none of the advantages of public ownership." "A railway that has its dividends guaranteed is under no inducement to give concessions to the public or make as strong efforts in the direc- tion of progressive methods as if its success depended on merit or the results of competition. We have no adequate competition in France. The competition of the canals" and natural waterways is wholly insuffi- cient, and there is no railway competition except in the border towns of the railroad districts. The monopoly of the railroads in their districts gives them an unfair advantage in dealing with the public." "The State guarantees big dividends and leaves the companies in practical control of the tariff to make the dividends still bigger if they can. If there is a deficit the company holds out its hand. If there is a profit, the company pockets it. All the risks are on the State, and it has no possession or adequate control. If the State has the risk it should have the profits." "Both in construction and operation the interest of the State is radically incompatible with the mercantile spirit of the private com- panies. They look to profit, the State looks to national advantage." Two distinguished publicists in Paris of opposing views stated to me the arguments for and against immediate purchase by the State of at least a part of the private railroad system. These gentlemen took many hours in presenting the different sides of this question, so I can give here but a bare outline of their arguments. For immediate purchase the main points are as follows : 1. "Operation of the railways by all for all is what we need in France in place of operation by a few for a few with a supervision which, tho preventing many abuses, does not and cannot supply an impulse to strive for the service of the people, the due reduction of rates, and the develop- ment of the country." 2. "The State would not regard the roads as a commercial speculation, but as public highways to be worked for the public benefit." (") The canals in France belong to the Government. The railways have not been permitted, as in England, to purchase and throw out of use or otherwise break down competing canals. France has spent more than $300,000,000 in the last hundred years in developing her system of inland navigation on canals and rivers, and for a quarter of a century the canals have been toll-free, — as free as the rivers to any boat, the last vestige of canal dues having been abolished in 1880. There are those in France, and some of them very thoughtful men, who look forward to the day "when the use of the railways will be free to all as the use of the highways and the canals i* to-day." The men who are grappling with the present railway problem in France say; "This Utopian solution may be the ideal toward which railway progress will move and always tend more and more to approach, but will never quite reach," Lessons from Other Lands. 309 3. "State ownership would unify and simplify the tariffs, which are now very complex." 4. "The State would lower and equalize rates. Regulation fails to do this." 5. "Consolidation under the State would decrease the cost of operation, and State management is more economical than private." 6. "The companies have no competition between themselves and are not giving satisfactory service and prompt deliveries." 7. "Unfair discrimination is practiced on the private roads and is not on the State roads, and would not be if the State owned all its roads."" 8. "The companies having an absolute monopoly and guaranteed divi- dends are relieved from the necessity of introducing improvements and are non-progressive." 9. "The companies do not write off depreciation, but pile up their capital." 10. "The companies work their men too hard. Train-men frequently work II and 12 hours and get only 70 cents to $1 a day, against $1.25 on the State lines for fewer hours." 11. "Experience with State management on the lines operated by the government has been eminently satisfactory." Besides reducing rates and securing a very economical administration, the State roads have led the way in railway progress. They were the first to establish (1880) regular round trip tickets at reduced rates."" 12. "The Government could buy up four of the railways now at small cost, for they owe the State almost enough to cover the value of their movable property, and the net revenue from operation is more than enough to pay the annuity required by the law for the remainder of the franchise term."''" (") I described some of the worst methods o£ discrimination practised by our roads in favor of the Standard Oil, Beef Combine, trusts with terminal railroads, etc., and asked if anything like that existed in France, and was met with aii emphatic "No." I asked that question many times in France and in every country I visited, and always got the vigorous negative from men of every class. (18) The State undertook an exceedingly difficult task. It acquired bankrupt roads badly located in a region shunned by the private companies, and until recently had no line to Paris. None of the big interests are on its line. It has none of the dense traffic of the country, none of the great national advantages, and many handicaps. Yet it made reductions of 25 percent on freight and 36 per- cent on passenger rates the first dozen years, has continued this policy, thereby building up business, and has made a good profit because of its progressive andi efficient management. (See Journal Official, igoi, Ch. Annexes, Session Extraor- dinaire, p. 1 125.) (10) Formerly excursion rates were given within a limited area on fete days and other special occasions, but the State established the policy of giving round trip tickets from any given station to any other, and it accords a reduction of 25 to 40 percent, while the companies give only 10 to 25 percent reduction. _ Tbe companies were very slow in following the lead at all, the first one beginning! m 1889. (^) The law requires that within three months after purchase the State shall pay the company the cost of its supplementary improvements within 15 years, deducting 1/15 for each year since the work was done, and also the value of its movables (rolling stock, furniture, tools, etc., in stations and shops, fuel, supplies and materials) less the amount the company owes the Government for advances of interest, dividends, etc. Taking a moderate official estimate between the valuation made by the com- panies on the one hand and some of the extreme advocates of purchase on the 310 The Railroad Problem. The principal objections raised by those who oppose State purchase before the expiration of the franchises are : 1. "Personal interest is necessary to the due stimulation of industry and progress."^ 2. "The dangers of officialism are very grave. The party in control would have too much power."'^ 3. "The coefficients of operation are in favor of private and against public ownership."^ 4. "It is feared that political rate-making might prevail uijider a State system, subjecting industry to the contingencies of party politics. There would be a Conservative Tariff and a Progressive Tariff; a Government Tariff and an Opposition Tariff. The fluctuation and uncertainty of rates depending on political influences would be very bad for industry."^ 5. "The State might be extravagant in expenditures for improve- ments and for the pay of employees."^ 6. "The high rates now prevailing are due more to Government control than to the companies. The Government has guaranteed the railway obligations and does not want to risk a deficit, and so is not in favor of reducing rates."^ other we have the following figures for the Western, Middle, Orleans and Eastern railways: Western. Middle. Orleans. Eastern. Value of movables in francs. .. .197,970,000 109,358,000 181,131,500 160,281,500 Allowance for improvements with- in 15 years 46,607,900 28,883,600 52,000,000 53,000,000 Totals 244,577,900 138,241,600 233,131,500 213,281,500 Amounts owed to the Govern- ment by the companies, 1902. .301,373,892 221,971,987 200,238,686 205,563,722 Balances due the State 56,795,992 83,730,387 Balances due the companies 32,892,814 7,7i-;,77& So on the whole the State would have about a hundred million francs coming to it on the four purchases. Even at the companies* valuations (which do not allow anything for depreciation of the rolling stock that forms about 6/8 of the total value of the movables) the Government would only have to pay about $50,000,000 for the four systems with 13,000 miles of line, or less than $4,000 a mile. (21) But the mass of railway employees are not personally interested in the private lines as owners, and even those individuals who are personally interested as owners sometimes find their personal interests operating against progressiveness of railway management, and it very frequently operates against public policy. It is also true that the State management has proved more progressive than that of the company. (22) As a matter of fact the employees^ of the Government Post and Telegraph service are politically independent ; and while these are few in number it is fair to- infer that the greater number of railway employees under Government employment would also be free. The head of the State railways told me that there was ver^ little politics indeed_ in the appointment and promotion of the men in the Govern- ment's railway service. On the other hand the private railways have a political record, and by use of all the means at their disposal wield great political jtower under the present situation. (23) This is a questionable statement. The difference in conditions undeir which business is done must be recognized, and it is well to note in passing that in America the Boston and Maine and New Haven railroads have a coefficient of 72 percent, which is still higher than that of the State railways of France. (2*) Nothing of this kind has happened on the State system in its 25 years of Government operation. (^) As to improvements it would be well indeed if the present companies would imitate the Government in liberality and progressiveness. As to salaries, the Government could be very generous before reaching the present standard of private railway salaries. (=«) If this is the true philosophy of the matter, it seems strange that the Government should constantly reduce rates on its own lines. Lessons from Other Lands. 311 7. "State ownership would encourage the sociaHsts, and we are op- posed to it on that account."" 8. "What we need is not State purchase, but freedom for the com- panies to manage their business without the constant interference of the Government." Such are the principal arguments I met in France for and against State ownership. Very few raise any objections to State operation at the expiration of the charters, but a large number with whom I talked argued with considerable force against immediate State purchase. It is quite possible that a compromise may be reached, and one or two of the lines that can be taken at least expense may be absorbed, and if the experiment proves advantageous further purchases will be likely to follow. It is beyond question that the sentiment in favor of State operation is growing in France ; that it is now regarded by many as the principal question before the coun- try; and that action is probable at no very distant date if a way can be found that does not involve too much financial risk. The essence of the French system is regulation as a sub- stitute for competition, and it has not proved a success. The people do not get what they want, neither do the railways. The railroad managers envy the freedom enjoyed by Ameri- can companies, yet look with astonishment at the "wild cat" methods employed by some of our roads and declare un- hesitatingly that such transactions would not be permitted in Europe. The trouble with the French company system is that while it secures the dominance of public interest in large degree for prevention, it does not secure the dominance of public interest for action. There is no one who has the motive to act in the public interest who has possession and management of the roads. The company officers in possession are not actuated by public motives, but wish to run the railways for their profit ; while the Government officers, who do act under public motives, can only check what is unlawful ; not having possession of the machinery, they cannot adopt a positive policy in harmony with the public interest. (") Suppose that the socialists want honest Government: Should it be opposed on that account' The average Frenchman needs only to be reminded in this con- nection of the strong advocacy of Gambetta for public ownership. I was told also- that a majority in the Assembly now favor it. 312 The Railways, the Trusts, and the People. President Hadley truly says "" that the control exercised by the French Government over the railways is in many respects admirable, but lacks in elasticity and adaptation. The reason, I think, is the one I have given in the preceding paragraph. Hadley adds : "It is an interesting fact that a railroad which is owned and managed by the State, in its general policy is much more like our own railroads than is a road which is owned by a private company, but strictly controlled by State regulations. In the latter case the State has no direct interest in making exceptions to its own rules. In the former case it has. The rules which a State will make for itself are there- fore less rigid than those which it will make for others. This difference is strikingly seen in comparing the development of railroads in Belgium or Germany, where the State actually owns the leading roads, with that in France, where it merely controls them. The former is much more untrammeled." GERMANY. The first railways in Germany were private.' In Prussia, whose history is of the most importance to us, railway building was left to private enterprise till 1848, the Government assist- ing in some cases by investing in stock or guaranteeing a mini- mum of interest on the stock.^ The period 1848 to 1862 was characterized by the building of State roads. Then came an era of speculation, 1863-1877, during which many private roads were constructed. In 1878- 1879, after long experience with both public and private rail- ways, a definite and final decision was reached in favor of State roads, and from that time on, by purchase and construction, the Government has added to its railway system till now it has about i9/20ths of the total mileage, and it is only a question of (^') Railroad Transportation, p. 200. i}) Tlie first road from Nuremberg to Furth (Bavaria), about four miles long, was successfully projected in 1832, and the stock sold in 1833, the Government becoming a shareholder to the extent of 200 gulden ($80). The charter gave the company the exclusive privilege of building and operating a railway between the two cities for 30 years. The Leipzig-Dresden road (Saxony), 9 miles long, was chartered in 1835 and part of it opened two years later. In 1833 and again in 183s, the progressive merchants of Magdeburg asked for the right to build a road to Leipzig; but the Government said it was necessary to consider carefully the bearings of such concessions on the public welfare, and that it was the duty of the State to take such a position in respect to railways that it might at any time in the future interfere in behalf of the public interest. The charter was granted in 1837 on condition that the company should be bound by all laws, rescripts and orders that might thereafter be issued in relation to railways. (") This policy was adopted in 1842 on condition that if the State had to advance money to a company on the guarantee it might, after a time, undertake the management of, the road. Lessons from Other Lands. 313 time when it will have the other twentieth. In every one of the 26 States of the German nation the railways are either wholly, or almost wholly, in the hands of the Government — 30,520 miles out of a total of 33,070 being public roads and only 2,456 miles operated by private companies." The Prussian railway law of November 3, 1838, which is still in force and in its essentials constitutes the basis of the present railway law of the State, is regarded as a model of statesmanship ; * and with the supplementary laws passed later provided many important safeguards of the public interest. This law, with the amending act of May 30, 1853, established a system of progressive taxation on the net earnings of railway companies." All moneys realized from these taxes were to be used by the State in pur- chasing railway shares, all income on stock so purchased must be used for the same purpose, and no stock so purchased could be again put on the market. The first State railroad was begun in 1848 from Berlin, east, and opened in 1850. In succeeding years other State lines were built, and the stock of private railways was bought with the proceeds of the special progressive tax on railroad income." In 1866 the Government absorbed the railways of the provinces annexed by Prussia after the 7 weeks' war by which Bismarck kicked Austria out of the German Con- federation. At the close of the year the Government had 2,000 miles (^) The private roads are mostly very small branch lines, lumbering roads, etc.; some 87 miles of the road operated by the Government is private property. There are also 1,244 miles of narrow gauge, or light railway, about half of it in the hands of the Government. In Alsace-Lorraine all but 24 of the 1,042 miles of railroad are public property. They are owned and operated by the Empire. In most of the States the roads are owned and operated by the States under national regulation. In 1902 Saxony held 1,552 miles against 3 miles of private road; Baden, 1,053 miles State and 134 private; Bavaria, 3,632 State, 598 private; Wurtemberg, 1,024 miles State road and 42 miles private, etc. (*) It provided that a company desiring a charter must apply to the Minister of Public Works, accompanying the application with full plans and statements. If, after thorough investigation, the proposed road appears to be in harmony with public interest the concession is granted. Shares were not to be issued till their full face value had been paid. No additional shares or loans could be negotiated without consent of the Government, and a sinking fund was required to be estab- lished to pay off the debt. By-laws made by the stockholders were not valid till approved by tlie Government. The law declared that railways were public high- ways, and that all users must be treated alike. Safety was carefully provided for, and the company was made liable for damages in case of accident unless it could prove it was not at fault. The companies must carry the mails free of charge, in- cluding the parcels post. If the profits exceeded 10 percent, rates must be re- duced, and Government supervision of rates was provided for. The State re- served the right of purchase after 30 years from the opening of the railroad on paying 25 times the average annual dividends paid the shareholders during the five years preceding the purchase. (') On net earnings not exceeding 4 percent on the capital, the tax was fixed at 2^ percent; on earnings from 4 to 5 percent the tax was s percent; o.n earnings from s to 6 percent the tax was 10 percent; and on all net earnings above 6 per- cent the tax was 20 percent. From a company having net earnings of $600,000, representing 8 percent on its capital, the Government would claim $50,000 to be used in buying up railway shares. (») The process of buying the roads with the graduated income taxes collected from the roads was continued till 1859, when Section No. 6 of the Act of 1853, devoting the fund to railway purchase, was repealed. 314 The Railroad Problem, of road against 2,200 miles operated by the companies; and at the end of 1868 the State roads covered 3.000 miles and the private roads 3,060 miles. When the German Empire was formed at the close of the Franco- Prussian war in 1871, the Federal Constitution gave the central Gov- ernment power to build railways, grant charters, supervise and regulate the construction and operation of railroads and control tariffs/ Bismarck was for the transfer of all the State railways to the Empire, and a bill authorizing Prussia to sell her roads to the Federal Govern- ment was passed by the Prussian Parliament (1876); but the new fledged national spirit was not strong enough to overcome the feeling of local State interests in this matter on the part of some of the States, especially Bavaria, Saxony and Wurtemburg, and the opposition was so strong that the plan was given up. The Federal Government does own the railways of Alsace-Lorraine, which became national prop- erty as a result of the Franco-Prussian war. Aside from this and a short line in Prussia, the public roads belong to the States, but are operated under the supervision and control of the National Government. In his efforts to secure full State ownership of railroads in Prussia, Bismarck met with complete success. Everything conspired to help the movement. German experience with private railways, while nothing like as bad as ours, was sufficiently disquieting to make the advantages of public roads very clear. The two systems working side by side for thirty years had convinced the German people, including the business classes, that public ownership and operation was the true policy. With all their power, the Governments of Prussia and the Federation had C) The main provisions of the imperial constitution in relation to railways are as follows: The Empire reserves the right of control and of legislation on the subject of railways, highways, etc. Railways may be built by the Empire, or by private undertakers to whom the Empire may have granted a concession and the right pi expropriation. Every existing railway is bound to permit a junction with the newly built roads at the expense of the latter. Those legal provisions which grant to existing railways the right to control the building of parallel lines are, without impairing acquired rights, hereby repealed for the entire Empire. The Federal Government binds itself to cause the German railways to be man- aged in the interest of the general traffic as a uniform network, and for this pur- pose to cause new roads to be built and equipped according to uniform norms. In accordance with the above, uniform regulations for the operation of roads, especially uniform railway police regulations, shall be introduced with all practi- cable dispatch. The Federal Government shall take care that the railway man- agement, at all times, preserves the roads in such a state of repair and provides, them with such an amount of rolling stock as the interests of safety and the public traffic may demand. The Federal Government reserves the right to control the tariffs. The same shall strive to effect (i) the introduction of a uniform system of reglements for the operation of all German railways; (2) the unification and redpction of rates, especially in the long-distance hauls of coal, coke, woods, ores, stone, salt, jiig iron, fertilizers and similar articles supplying the wants of agriculture and in- dustry. In times of distress, especially with, an exceptional rise in the price of the necessaries of life, the railways shall be bound to introduce, temporarily, for the transportation of (especially) grain flour, leguminous products and potatoes, re- duced rates, to be fixed by the Emperor on recommendation of the committee of the Bundesrath, provided that such tariff shall not be reduced below the lowest rate in force on the respective roads for the transportation of raw material. The several railway managements shall be obliged to meet unconditionally the demands of the Federal authorities for the use of the railways for the defense of Germany. Especially are troops and all accoutrements of war to be transported at uniformly reduced rates. Lessons from Other Lands. 315 found it impossible to prevent the companies from making unjust dis- criminations, and the division of the railways into many different managements had interfered -with the efficiency of the transportation system as a whole. Commercial interests favored public operation of railways. In 1872, four years before Bismarck formed his national railway policy, the German Handelstag, representing the united chambers of commerce, petitioned for Government management of all the railways to secure greater unity and efficiency and to stop the abuses of the private rail- ways.' In the latter sixties and early seventies much liberty was allowed in railway building. Competitive construction flourished. Private rail- ways were in full bloom. The real character of the system became vividly apparent. As in America so in Germany, overconstruction of railways on specu- lative ventures was a main cause of the crisis of 1873. It was substan- tially a railroad panic. The same year, Lasker, a member of the Prussian Parliament, made serious charges in relation to the private railways. An investigation was ordered. The commission held 56 sittings, and the evidence and conclusions fill a thousand big quarto pages. The moral rottenness of the private railroads was fully ex- posed — the political pressure they used to get their franchises; the conscienceless discriminations they practiced between persons and places ; the arbitrary use of industrial power to build up one and tear down another; the absence of any effort to make rates either absolutely or relatively reasonable, except so far as public control may intervene ; the abuse of power for private purposes ; the utter disregard of the public interest wherever it conflicted with the private interest of the railways — all these tendencies or laws of action were revealed and masses of facts in relation to them brought to light. The commission re- ported in favor of an exclusive system of State railways, saying that it could not be realized at once, but "on economic considerations" and other grounds "such a system' is the final goal to be striven for." In 1874 Albert von Maybach, "the man with the snowplow jaw," be- came the head of the Government Railway Department. He was a man of great energy and resource, and thoroughly convinced that the unifi- cation and socialization of the railways was industrially and politically wise. He and Bismarck, the chambers of commerce, and other business (') They said, in part: "The character of the railways as trade undertakings based on monopoly is contrary to the idea of their institution for the public good, and has the actual effect of making the railway administration the absolute mas- ters of the public. . . . Competition does not protect the public against monopo- list oppression; the railway companies easily resolve themselves into a coalition of those interested in the monopoly. ... A comprehensive reform can only be hoped for when all the railways of Germany are managed as one system and sub- ject to the condition that this administration, like the past, should offer that guar- antee of regard for the public interest which no written law would ever succeed in infusing into private railways. It is only the State which could afford such a fuarantee, and for this reason the transfer of the whole railway system to the tate is necessary." They recommended the nationalization of the railways and their management as a single system. 3i6 The Raihvays, the Trusts, and the People. interests, worked together for this end. Pohtical and commercial forces joined in the movement. The railway question in the seventies was the principal question in Germany, as it was still last year in Italy, and for a number of years preceding the referendum of 1898 in Switzerland, and is to-day in France and America. The Germans dealt with the problem with a thoroughness far exceeding anything that has yet been seen in this country or England or France in relation to this matter. And Prussia had the advantage of many years' experience with a well devel- oped system of State railways nearly as extensive as the private railways, affording a basis for domestic comparisons which we do not possess. State ownership was advocated mainly on economic and political grounds, military considerations being advanced also but with nothing like the stress laid on the economic argu- ments." It was urged that the railways should be managed solely in the public interest, and as a unit ; that railways are frequently needed where they will not pay and where private enterprise will not build them ; that, on the other hand, private enterprise wastes capital and labor, building unnecessary roads and run- ning unnecessary trains ; that the irregularity of private railway construction causes serious injury to industry, helping to bring on industrial and financial disturbance and ceasing just when its continuance is most needed for industrial relief; that the Government alone can draw up a consistent plan of railway building to extend through many years and to be executed gradually with due regard to the public well-being, and find it even more profitable to push construction in times of depres- sion. Competition of private companies, it was shown, leads to monopoly. In France 6 big companies have absorbed 48 (») It has been affirmed by some who, without investigating the facts, assumed that Prussian policy was simply military policy, that the railways were nationalized in order to give the Government more strength in time of war. This argument did have weight; but the main emphasis was laid, even by Bismarck himself, on the economic arguments: the necessity of abolishing discriminations, eliminating the waste of competitive roads and administering the railways in the interest of all instead of for the profit of a few. This is indeed admitted even by writers least likely to give the Prussian policy any undue credit for breadth and balance. Hadley says, speaking of the evils of discrimination: "It is characteristic that Bismarck, who always chose his fighting ground with skill, made this a main base of operations in his contest against private railroad policy in Prussia." (Railroad Transportation, p. 120.) And Hugo Meyer says: "One of the principal reasons that led the Prussian Diet, in 1879, to accept the Government's proposal to enter upon the policy of acquiring by purchase or by lease the private railways situated in Prussian terri- tory was public dissatisfaction with the discriminations in rates which the railways made in favor of competitive points." (Regulation of Railway Rates, p. 3.) It is an error to suppose that the Prussian policy after 1871 was a military policy. Bismarck had brought on three wars, one with Denmark, one with Austria and one with France, in order to secure German unity. When that was accom- plished, in 1871, Bismarck's policy was no longer war, but peace and industrial development; and it was mainly on these grounds and for justice and economy that he advocated the nationalization of railroads. Lessons from Other Lands. 317 companies; in England 11 of the chief railways have absorbed 362 companies ; and the same processes were at work in Ger- many. The private railways interfere with the effectiveness of the protective tariff. Public railways are of great military value to the State, and military men agree in assigning much weight to the acquisition of the railways by the State. The profits upon transportation may be much more justly obtained and much more beneficially used in the public interest under a State system. The discriminations and other abuses of the private companies must be stopped, and there is no way in which this can be thoroughly accomplished except by public ownership and operation, for many of the abuses are secret and Government regulation has proved insufficient. The opposition was powerful. Objections were vigorously urged — most of the objections already noted in the history of French discussion, substantially the same objectons that are made in America to-day — that so great an extension of Govern- ment employment would be dangerous ; that political abuses would result; that sectional strife would paralyze the railroad system ; that in the absence of competition the State roads would become non-progressive and inefficient; that private initiative and individual liberty were essential (meaning pri- vate initiative for private profit as distinguished from private initiative in public service), etc., etc. In his great speeches in the Prussian Parliament, Bismarck bore down all objections by appealing to experience with State railways in Prussia and other German States (some of which owned practically all their railways), and emphasizing the fact that State railways "served the public interest," and, "as a secondary consideration, aid the public treasury," while "it is the misfortune of private railways" that public highways and public functions "should be exploited in behalf of private in- terests and private pockets." The argument for State ownership submitted to the Prussian Parliament in 1879 by the Cabinet, along with bills granting the power and means necessary for the purchase of four important railway systems and the extension of the State lines," is one (") These bills of October 29, 1879, provided (i) for the purchase of four, com- panies with 338 km. of line, or about one-third of the private railway; (2) for the extension of the State system by the construction of nine lines with 484 km., to cost 49,420,350 marks (about $40,000 a mile); and (3) for the purchase of private railway stocks to the amount of 2,288,000 marks. 3i8 The Railroad Problem. of the most important railroad documents in the world. For years the question had had the attention of the best minds in Germany, hundreds of books and pamphlets were issued and no relevant consideration was left untouched. The Cabinet said : "The inconveniences caused by the private management of railroads in consequence of the existence of a number of different enterprises of doubtful solidity and restricted working capacity;' the abuse of their privileged position by their managers; the oft recurring resistance to reforms of public utility; the complication and for the most part arbi- trary differences among the various administrative and working arrange- ments ; the intricacy of the tariffs ; the quarreling and extravagant ex- penditure accompanying the bitter competition existing among such a number of corporations, have altogether caused the widespread injury to the public welfare that is inseparable from an extended private man- agement of railroads. Meanwhile, on the other side, by the extended development of the Government railroad management another solution of the question was in preparation. The considerable increase in the Government railroads that occurred on the annexation of the provinces acquired in 1866 and the establishment of connecting lines between the eastern and western railroads have proved the government railroad system to be unequivocally the best for Prussia, and it has gained there- by considerable ground against the so-called mixed system. The neces- sity has therefore become apparent for providing fully for the public interests, not by regulating the operation of the private roads through legislative reform and State supervision, which do not promise to be effective, but by the abolition of the private railroad system and the imion of all principal inland railroads in the hands of the Government. . . . The attempts to bring about reform by laws have shown the futility of hoping for a satisfactory improvement through legal measures, without trenching materially cm established rights and interests." Therefore, it was dedmed best to introduce "an act empowering the Government to acquire such private railroads as might be desirable." "The railroad laws of all countries are founded on the experience that the most important public interests are affected by railroads. In all legislation the railroads are, therefore, placed under the supervision of the State. The experience of the inadequacy of State supervision for the protection of public interests concerned has caused the question of the advisability of transferring the railroads to the Government to be by degrees raised universally. Already we find in the railroad poHcy of many of the European countries a tendency by appropriate acquisition of private roads to placing railroads in the hands or under the predom- inant influence of the Government. "Recent events in Bavaria, Saxony, Belgium, France, Italy and Austria have shown in the national policy the extent and importance of this ten- dency to turn the railroads over to the State." In Prussia this poHcy has Lessons from Other Lands. 319 been encouraged by the great extension of the State railways in late years and the approval of last year's Parliament. "State ownership is necessary," argued the Cabinet, "to attain unity and economy under con- ditions in harmony with the public welfare and to secure direct attention to public interests which do not permanently find sufficient furtherance and protection where the railroads are in the hands of private corpora- tions whose object is gain. . . . The inadequacy of private manage- ment and State supervision becomes daily more obvious." Complaints as to rates and discrimination, time-tables and service, they said, never cease. "The railroads are pubHc highways and can only be left to unrestricted private control so far as public interest permits. The very nature of a public highway requires that its use must be secured to everybody on equal terms." " "It is the duty of the Government," they argued, "to see that the people have fair rates and equal treatment ; to protect the public against arbitrary, fluctuating, complex and unjust tariffs; to demand safe trans- portation for the public and ample facilities to guard the customs duties against neutralization by railway concessions to foreign goods." For all these reasons the Government must control the railways, but the con- flict of interest between the private railways and the public makes such control very difficult. The companies seek profit and often try to deflect the law instead of giving cordial support and full effectiveness to Government regulation in the public interest. On the other hand it is a very delicate question how far the Government has a right to exert control for the public good against the financial interests of the railways. Experience has shown that it is not possible to secure just and reason- able rates, or simple, steady tariffs, or due regard to safety, or adequate protection for pubUc interests in many ways. And no control sufficient to accomplish this could be exerted without trenching on the rights of private investment, depriving the companies of their independence and practically taking over the management and confiscating the roads to public use." (^^) It is interesting to find the Bismarck Cabinet of 1879 insisting on the same fundamental principle that President Roosevelt has made the keynote of his message to Congress in 1904 and 1905. O Supplementing the condensed statement of the text, some quotations from the Cabinet's argument on these important points cannot fail to be of interest: "We find the number of rates and combinations of rates employed in freight traffic often arbitrary, complicated, confused and varying. . . . The German railroads possess in addition to 63 artfully arranged local tariffs, with their various _ classi- fications, numerous exceptional and special tariffs and clauses, 184 general tariffs for the through traffic interchanged on the German railroads, 351 special rates for particular articles of freight, and in addition 199 general tariffs for ^international through traffic, with 314 special rates for particular articles of freight." "After the two successful wars of 1866 and 1870 the traffic management was dictated by reckless and unsystematic competition: latterly the pooling system, or mutual agreements among the different roads by which the traffic is divided for certain fixed periods. Without considering the endless and disagreeable quarrels among the different roads that are inseparable from the system, this method is not calculated to reduce the expense that is caused by competition." "To provide for the safety of railroaid operation the projected structures of the road are subject to Government examination and sanction; on this account we have Government supervision of the construction of rolling stock. Government control of railroad track regulations, the determination by Government of the qualifications of the track-men and engine-men, the examination and approval of the time-tables, the control of the hours of service and distribution of service of the employees 320 The Railways, the Trusts, and the People. The Cabinet also dwelt upon the advantage of unity, etc., the waste of having fifty separate railway managements." Large savings in official salaries would result from unity of management. The army of employees in the tariff and acounting offices could, also be reduced one-half. "The reasonable utilization of cars" was interfered with "by the multiplicity of owners, and the working capacity of the rolling stock greatly reduced in consequence/' one-third of the travel being made with empty cars. The waste in haulage by circuitous transportation was also shown. "Freight is carried over roads exceeding in length by lOO percent the shortest routes." The evils of private construction must also be consid- ered under this head. The unnecessary duplication of facilities entails a serious loss both in construction and operation.^* On the other hand, entrusted with guarding the road, the reports, inspections and inquiries into irregu- larities of trains, respecting the maintenance of the road and equipment, the estab- lishment, provision for and condition of the reserve and renewal funds. Even all these rules and directions which are intended to secure the regularity and safety of operation fulfil their object but imperfectly when the management does not consci- entiously support the Government and carefully meet the requirements that are arising from constantly changing circumstances." (13) "But the union of the railroads in the hands of one private enterprise would be absolutely inadmissable. Altho the disadvantages and dangers of an unsystematic division and wasteful competition would thus be avoided, to place the complete monopoly of all means of transport in the hands of one enormous profit-seeking corporation would be antagonistic to every public interest concerned, as will be apparent to all. Already in those countries where private railroad man- agement is the rule, and where the technically and economically justified process of absorption by the powerful corporations of the smaller and less important railroads prevails, their course hitherto, the dangerous influence which these corporations have acquired over the whole public existence, the reckless pursuit of the profits of their monopoly and their chartered rights within the districts they serve, and the impotency of Government supervision compared with their far-reaching, well organized power, controlling all interests, together cause the gravest apprehensions for the welfare of the country, and even for its political independence." "Only the union of complete ownership and unrestricted management in the hands of the State can fully secure the fulfillment of the task devolving on the Government with regard to the direction of railroad matters. Only by the adoption of this system can the economical advantages of united management be obtained without the monopoly of transportation compromising the advancement and protection of the interests of the community. The great advantages of com- plete unity in the management and operation of the railroads are so necessary to the economical interests of the country that the only question left is whether a monopoly by the State or by private corporations is to be regarded as the most advantageous form of unity. If a private monopoly, as just described, is wholly incompatible with the proper protection of public interests, but would render all business requiring transportation dependent on the interests and views of a private enterprise, then a Government monopoly, one single transportation establishment conducted by the State for all the railroads of the country, appears to be tlxe only possible form in which complete unity of operation can be accompanied by the protection of the interests of the community." — Prussian Cabinet, 1879. (^*) "Among the mines and iron works of the Ruhr coal district, we find that no less than fifty-six establishments have complete and independent side-track con- nections with two roads, and there are twelve that connect with three different roads, altho either of them, if prop_erly managed, would suffice for the whole traffit of the works. The capital city, Berlin, has at least duplicate railroad communica- tion with almost every commercial centre in Germany; with the five hundred miles distant industrial district of Rhenish Westphalia it is united by three fully equipped and independent railroad lines. On two of these lines there are daily three fast through trains, starting at the same minute each day, and arranged and furnished as through passenger trains. The passenger and also the freight traffic between these points might, in ordinary times, be accommodated easily by any one of the roads. In fact, there is scarcely a place of any commercial importance in Germany but is served by two or more competing corporations, altho the traffic does not nearly require them. Hundreds of millions (of marks) have been sunk in superfluous roads — many and extensive lines, numerous and costly structures (bridges, stations, etc.), built solely to exercise competition or to meet competition that may have arisen. Altho we cannot regard all these works as absolutely unpro- ductive, they nevertheless entail a deplorable waste of the national wealth, as the money expended on them has been withdrawn from other and more useful public enterprises." Lessons from Other Lands. 321 the companies have never been vifilling to undertake much of the con- struction needed for the development of outlying districts unless the Government guaranteed dividends, and "where a company has guaran- teed and unguaranteed railways the overcharging of the first in the division of the working expenses can hardly be avoided except by Gov- ernment management." The disadvantages of an ill-planned, unsystematic building of railroads are incalculable, as the capital resources of every country are limited, and capital uselessly employed is forever withdrawn from its proper object — the furtherance of economi- cal development. "More than all," said the Cabinet, "the principle of equality, the impartial treatment of all shippers, is endangered by the operation of railroads by private corporations. The principles of the pubUcity of the rates and the equal treatment of all shippers, which are embodied in the railroad legislation of all countries, are liable, as experience has shown, to be circumvented on account of the competing interests of railroads, and also by individual interests which have influence with the manage- ments. The granting of these secret advantages in transportation in the most diversified ways to individual shippers, and in particular the so- called rebate system, is the injurious misuse of the powers granted to railroad corporations. It renders Government control of the rates impos- sible, makes the competition between the different lines, as well as that of shippers dependent on them, dishonorable and unfair, carries corruption among the railroad employees and leads more and more to the subordi- nation of the railroad management to the special interests of certain pow- erful cliques. It is the duty of the Government to oppose this evil, to uphold the principle of the equal treatment of all shippers, and to enforce the legislative regulations on this subject. The importance of this prob- lem is only equaled by the difficulty of its solution. It suits the interests of the railroad proprietors to favor large shippers in preference to the smaller ones, and, by means of secret favors of all kinds, to divert the most important shipments from the competing lines. The opportunities of securing secret favors to particular shippers are so manifold that "With these direct losses entailed by competitive railroad construction, its evil consequences are by no means at an end. The hasty and precipitate competition of the different railroads has contributed not a little to the overproduction from which our commerce and industry still suffer, and may long be subject to. In- numerable industries are to a great extent dependent on railroad construction and operation, so that overproduction in this department naturally recoils on the manufacturing interests. This precipitation, the hurried competitive construction, the excessive production of railroad supplies, have disarranged the standard by which the normal development of railroads is judged, and have given rise to extension of investments and operation in all industries connected with the con- struction and operation of railroads far beyond their requirements. It would not be unjust to attribute to this senseless competition in building during the period of original construction a good share of the blame for the present business depression, a depression which would have affected the national industries still more severely if the Government had not stepped in, and with the means acquired by a fortuitous train of circumstances, begun to build considerable additions to the State railroads, and thus infused new life into the almost prostrate industries." (Prussian Cabinet Argument, 1879.) 322 The Railroad Problem. their effectual lasting hindrance by means of the State supervising power is impossible. Rebates on freights may be made through a second or third party by means of the secret interposition of agents who are appointed for the purpose of regulating and securing the business of a certain competing route through the mediation of the foreign railroads concerned, as well as by a pre-arranged connivance in admitting or allowing fictitious or unfounded claims, etc., and so may be covered and withdrawn from public as well as official control." '° "The organization of a joint stock company does not prevent the possi- bility of the operation of a railroad being brought into a condition of complete dependence on some other industrial undertaking, nor does it insure that the directors of a private railroad company shall not be inter- ested in a series of other enterprises whose successful operation is dependent upon their business relations with the railroad, so that the management of the road may be directed and governed, not so much by its own interest as in the interest of some other business, often enough opposed to that of the road. Against such an organization, which, by reason of its abundant means, and by effective channels, often leads astray and corrupts public opinion, even the influence of the Gov- ernment is powerless, the principle of equable treatment of all railroad shipping interests becomes an empty form and legislative regulation nothing but a meaningless phrase." State ownership carried the day. Parliament gave the ad- ministration authority to purchase the principal private rail- ways, passing the bill by a vote of 226 to 155, and the roads were bought. The Government had a right to take the roads at 25 times the average net earnings for the preceding five years, but it preferred to come to an agreement satisfactory to the owners rather than to take the railways by compulsory process. Before negotiations were entered into with the companies, how- ever, they were given to understand that it was for their own interest not to make exorbitant demands, as in that case the Government would apply to them some of that competition they so much admired. The terms were fair to both sides. The companies as a rule got a little more than actual value. For example, the dividends of the Berlin, (15) "The provision of space and arrangements for storage," said tlie Cabinet "the exemption from storage and warehouse charges, the attention to the peculiar wishes of the shipper in the matter of the position of his cars and even the injurious practice of giving free passes to the chief shippers and showing them favors in the way of contracts for supplies and labor for the road, render possible an illegal preference of the interests of one before those of another. The large shippers, the best customers of the road, are readily granted all these favors and privileges, while the smaller shippers are held to the strict letter of the regulations. . . . If outsiders are favored unjustly, how is it when the owners of great manufacturing establishments situated on the line of the road, of great commercial houses which ship their freight by it or have an interest in the financial credit of an enterprise, succeed in entering the board of directors which controls the administration and operation of the road?" Lessons from Other Lands. 323 Potsdam and Magdeburg Railway had averaged only a trifle over yA percent during the preceding five years, and the State gave 4 percent. The BerHn and Stetten Railway paid 3.65 percent dividends in 1878, while the State gave the shareholders 4.75 percent." The companies got full value plus, and the State made an excellent bargain; for the economies effected under State management "enabled the Government to make a net profit of i percent on the purchase" above the interest paid on the consols exchanged for the stock" and on the 4^2 percent bonds of the companies which were transferred to the Government. Inside of half a decade private railways were reduced to an insignifi- cant fraction (less than one-twelfth of the mileage and in scattered unimportant fragments), and ceased to be an influential factor in rail- way administration. The Prussian system became substantially State ownership and operated under Federal regulation and control. In the other States the railways were already public property, so that when Prussia wheeled into line the German States marched shoulder to shoulder in the pubhc ownership column." (^*) In this case, however, the average dividends for the s years, 1874-78, was over 7.7 percent, so that while the State paid more than the value on the record of 1878, it paid much less than the rule established for compulsory purchase would have required. The same was true of the Rhenish Railway, whose dividends had averaged over 7 percent for many years, but had been gradually declining from 10 percent in 1871 to 7 percent in 1877 and 1878. The State in this case gave the shareholders 6^ percent. The shares of the railways rose considerably in prospect of the purchase, owing to the superior certainty of State securities and the probability of the stoppage of destructive competition. For example, a few months before Parliament opened in the fall of 1879, the shares of the Cologne and Minden road were quoted at about par, while in November they stood at 141. In the same way the stock of the Rhenish Railway rose from 70-odd to over 90. This, however, did not affect the agreement of purchase, as that was made on the basis of net earnings and real values and not on the basis of stock quotations. The prices paid in 4 percent consols for the first purchase amounted to 1,800,000 marks for the Homberg Road ($40,000 a mile), 17,250,000 marks for the Hessian Road ($108,000 a mile), and 717,342,900 marks for the Berlin, Potsdam and Magdeburg and the Rhenish Railways ($180,000 a mile). The reader who desires to go still more deeply into the nationalization of railways in Prussia, and does not care to go to German sources of information, may find a most valuable discussion in our State papers, in the shape of a study by Richard T. Ely, transmitted to Wm. Evarts, Secretary of State, by Hon. Andrew D. White, then United States Minister at Berlin. ("Foreign Relations of the U. S., 1880.") In sending the report, our ambassador said: "The subject of State rail- way management has attracted probably more attention in Germany within the last five years than any other having reference to purely internal affairs." The reader will also find much of prime value in the report prepared by B. H. Meyer (now a member of the Wisconsin Railroad Commission) for the Industrial Commission and printed in the ninth volume of its proceedings, pp. 962-983, 1901- (") This point was brought out strongly in the report of Sir Bernhard bamuel- son to the English Association of Chambers of Commerce in 1886. At that time the State had absorbed about all the important lines., "On the Prussian railways," says Samuelson, "the net returns were 5.55 per- cent on cost of construction, and 5.09 percent on the cost after including premiums on purchase. The purchased lines were paid for by consols, bearing 4 percent interest and the money employed in the construction of the lines by the Govern- ment itself was borrowed at about the same rate, hence there appears to be a clear profit to the Government of i percent on the capital invested m its railways, atter setting aside an amount as a sinking fund." „„„„i,n„„ (") Prussia has 35,000,000 of population, or more than 5 times the population of the next largest State, Bavaria, and 50 times the average population of the other 24 States in the Empire, the total population of Germany being 56,367,000. Prussia has 70 times the average area of the other States aside from Bavaria, which is a little more than one-fifth the size of Prussia. These figures show the over- whelming importance of Prussia in the German Federation. 324 The Railways, the Trusts, and the People. What have been the results? What are the facts? What do the German people think about them ? What does the world think about them? (i) The abuses so much complained of under the private system do not exist in Germany." Unjust discrimination has ceased. There is absolutely no favoritism in the German rail- roads. Shippers are treated with perfect impartiality. The chief count in the indictment of the private roads in Prussia, as in the United States, was the gravity of passes, rebates and other concessions to favored persons and places, and the most difficult problem was the abolition of these abuses. The prob- lem was not solved till the railways were nationalized, and then it was solved as a Turkish bath solves the problem of cleanliness. Discrimination disappeared completely. I was not able to find a shipper in Germany, nor anywhere in Eu- (1'^) This is admitted even by our own railroad writers. Hadley says, speaking of the Prussian railways: "It must be confessed that important results have been achieved. They have done away with the most dangerous forms of special contract and secret discrimination. The worst abuses under which we suffer in America have been avoided." (Railroad Transportation, 248.) Prof. Hugo Meyer, of Chicago University, who believes that "discrimination is the secret of efficiency of American railways," says there are no secret rates or personal or local discrim- inations on the German railways, and founds what seems to be his chief criticism of the German roads on the charge that they will not discriminate, but treat all persons and places alike. "Equal treatment," he says, "must be accorded to all, and the Government cannot make those due and necessary discriminations that are demanded for the welfare of the whole people." (Regulation of Railroad Rates, p. 23.) No wonder the Standard Oil and the Beef Trust heartily approve of Mr. Meyer's book, and the railroads have, it is said, distributed a million copies of it. On page 66 Prof. Meyer says: "The making of railway rates is now directly and positively under the control of the Prussian Government, and therefore personal discrimination has been done away with." Notice the "therefore." The professor apparently aims at a limitation with the clause "except in those forms where it is compelled by technical or other special conditions" (such as the lower rates on carload lots, discussed in the preceding pages). "I^ven more completely has local discrimination been done away with so far as the railways are concerned." He thinks there is discrimination on the water. "With the growth of the traffic which is not managed by the Prussian Government, there goes a great increase of personal discrimination." The explanation which follows, however, indicates that ■ he is speaking mainly of the lower boat rates large shipments can secure. He says further on this question of local discrimination (p. 45), that while the German people think it right to cut rates against a foreign city, they would not approve of rate-cutting "for the purpose of strengthening one German city as against another." The difference between car-load and less-than-carload rates is not a personal discrimination nor a discrimination of any kind in the sense in which the^ word is used in America. Such rates are not "made with any purpose of favoritism, and the difference in the rates on small lots is partly overcome in Germany by means of forwarding agencies, which gather up the parcels and ship them in five or ten ton lots. Down to 1897 they collected about 20 percent of the parcel shipments; since then the percentage has fallen to 10 or 12, the parcel rates having been lowered. That Prof. Meyer recognizes the fact that his limitation respecting technical conditions, etc., does not really constitute an exception, is proved by his statement on page 61, that, "In the American sense of the term, there is no personal dis- crimination." On this point, Prof. B. H. Meyer, of Wisconsin, our leading authority on foreign railways, agrees with Prof. Hugo Meyer, of Chicago; in his testimony before the United States Industrial Commission (Volume IX, p. 974), the Wis- consin professor says: "Prussia has made a success of her railways. Discrimina- tions are vinknown. The 'special rates' which are published, together with the reasons for which they are established, like regular rates, are open to everybody." Lessons from Other Lands. 325 rope, who knew or had heard, or had even a suspicion, of the granting of any rebate or concession of any kind by the German roads. Many of them did not stop with negative statements, but asserted positively that concessions could not be obtained.'''* There are no free passes except for employees on railway business. Even the Minister pays his fare, and the Emperor, too. There are no secret rebates or open concessions, by com- missions, elevator allowances or mileage graft in private cars ; no midnight tariffs, terminal railroad abuses or expense-bill tricks, no underbilling frauds or classification favors, no foster- ing of trusts and monopolies, no long and short haul injustices, no basing-point system, no watered securities or gambling in railway stocks, no railway wars, no wasteful construction of competitive railways, no refusal to construct needed lines in rural districts, no disregard of safety nor postponement of public interest to private profit in any way, no excessive trans- portation charges on the postal service, no railroad rulers levy- ing their private taxes on the commerce of the country, no railway nullification, evasion, or defiance of law, no railroad lobbyists either inside or outside of legislative bodies at the national capital or the State capitals seeking to corrupt or per- vert legislation, no railway battles in the courts, no railroad C^") Germany*s freedom from railway favoritism is not due to the absence of giant industrial interests, as any one familiar with trust literature well knows. The enormous Krupp concern, for instance, is bigger relatively to the Prussian roads than our steel trust relatively to our railroad system. The Standard Oil itself, the mother of the cut-throat rebate and author of many another devious device in railway management, does business in Germany and is probably as little troubled with conscience over there as it is here; in fact, people generally exhibit less conscience away from home than in their native land. This might not be possible in the case of Standard Oil, but with all its power and unscrupulousness, it cannot get any favors from the State railways; it cannot get either secret or open rates to enable it to control any part of Germany as it controls New England, the South, and other parts of the United States, according to the Interstate Com- merce Commission, the U. S. Commissioner of Corporations and Pres. Roosevelt. State management of railways cannot prevent the growth of industrial com- bination, but it can do much to prevent the combines from getting any such hold upon the people and resources of the country as they have in the United States, where a large number of trusts and combines have their roots in railroad dis- crimination. This important aspect of the case is clearly recognized in Germany. A few years ago the Frankfort Gazette, tho bitterly opposed to the Government, reviewing the career of Minister von Maybach, under whom the railways had been nationalized, accorded high commendation to the State railways, declaring that the nationalization of the railroads had been a brilliant success, and, among other things, "What would be our condition in Germany, in view of the rings- and trusts which we see all about us, if we had private railways which they could use?" The writer claimed that the impartial management of the railways had been beneficial in preventing such a growth of trusts as could be seen elsewhere, and referred to the unhappy experience of France under the system of private railways as contrasted with that of Germany, holding that it was most unfortunate that the "railway barons" in France had succeeded in deferring the purchase of the railways by the French Government. 326 The Railroad Problem. senators. Blessed Germany ! Her railway system is not per- fect — nothing human is ; but it has escaped so many evils and acquired so many excellencies that for many years it has commanded, not the unqualified endorsement, but the warm respect and admiration of all impartial students. (2) Not only have the German roads avoided the evils of private management, but the dangers and abuses predicted by objectors to State operation have not materialized. Political influence does not enter Into the administration nor into the employment of the men. The spoils system is unknown in Germany. No member of Parliament can get a friend or constituent work on the State railways through political influence. The man must be thoroughly fit and must prove his fitness by undergoing the civil service tests, like any other candidate for employment.^ Even the Minister cannot over- ride the civil service rules, nor can the Emperor himself disturb the impartiality and efiiciency of railway organization by the infusion of political influence into appointments. President Hadley says that political difficulties have not been experi- enced in the administration of the Prussian railways, which he thinks "is chiefly due to the superb organization of the Prussian civil service."^" Prof. B. H. Meyer, one of the highest railroad authorities, especially in matters relating to foreign railways, and head of the Transportation Department in Wisconsin University School of Economics till 1905, when Governor La Follette called him to be a member of the regenerated Railway Commission of Wisconsin, says : "In the invidious American sense of the word, the Prussian railways are most emphatically not in politics. There are no paid lobbyists, no subsidized newspapers, no partisan publication bureaus, no 'rake-offs.' I have been able to dis- cover only one instance of dishonesty and faithlessness, and that was a case of a subordinate employee who had appropriated railway scrap to his own uses. The case was tried only a few months ago. The man was sentenced to a penitentiary for a term of five years. Who will venture to say what would happen if the books of the American railway companies were to be subjected to the tests of the Prussian, with the same consequences in the courts ?" ^ (=") While in Berlin I asked a gentleman thoroughly acquainted with the French and German railways (and other European systems also) if the German management ever told the men how to vote or suggested what candidates it would be well to elect. "No," he replied, "that is done in France sometimes, but not in Germany. French railway managers tell their employees what deputies to vote for when they feel that their election is important to them; but railway managers in Germany would not think of doing that, and it would not be tolerated if they did." ^ The same question was put many times in different parts of Germany, to both friends and opponents of the administration, and the answer was always in the negative. (^^) Railroad Transportation, p. 252. C^) Jour. Polit. Econ., Feb. 19, 1906, p. 94. Lessons from Other Lands. 327 The high standards of training and efficiency railway em- ployees are required to attain, the thorough organization of the civil service, the effective auditing and supervision of every department, the co-ordination of the service with organizations representing the various industrial and social interests of the community, and the management of the roads by men engaged to serve the public interests and not to extract corporation dividends from the public, unite to make the railway adminis- tration clean, honest, and effective. A statement has been widely circulated to the effect that the German railway employees are disfranchised. Mr. Charles E. Russell, for ex- ample, who is by no means unfriendly to the German system, says : "The worst and most glaring defect of the German railroad system is that all the men that work for it, half a million in number, are disfran- chised and have no share in the Government." This statement has been pounced upon as furnishing the basis for an assertion that the reason the history of the German State railways has been free from political abuse is that the men cannot vote. No political party in Germany, they say, can utilize the railroad vote, for there is no such thing. As a matter of fact the whole argument is pure fiction. Mr. Russell is mistaken. The German railway employees are not disfranchised. They are perfectly free to vote, and do vote both in State and municipal elections. There is absolutely not a word of truth in the disfranchise- ment rumor. (3) The German railway management is the most enlight- ened and efficient in Europe. This is the opinion of nineteen- twentieths of all the railway authorities I met in my journeys through nine European countries, and many think the German management is the best in the world. The few who dissented from the majority view did so usually on the basis of a com- parison, not with the railways of any other country as a whole, but with some specially selected railway like the Pennsylvania or the London and Northwestern, or else they relied on a use of the average ton-mile rate, which, as we shall presently see, is wholly misleading unless details and conditions back of it are carefully analyzed. The utilization of car space is very high. British journals are constantly pointing their railway managements to the vastly superior results obtained on the German roads, and claiming that neither the larger percentage of retail traffic nor any other differences of condition warrant the enormous dif- 328 The Railways, the Trusts, and the People. ference of efficiency. And Hadley, dealing with American comparisons, says: "The State roads of Prussia undoubtedly manage to use a large percentage of available car space." "* Prof. Hugo Meyer, of Rockefeller's University, attacks the efficiency of German railways in what Prof. B. H. Meyer pronounces "one of the most astonishing chapters" in Prof. Hugo Meyer's book, which another high authority refers to as "an intellectual curiosity," adding that "the logical processes, or what the author appears to regard as logical pro- cesses, constantly remind one of Handy Andy." (See note 39.) Prof. B. H. Meyer says of Prof. Hugo Meyer's remarks on efficiency : "The author pronounces the verdict of technical inefficiency on the Prussian railways, and the only proof he offers is the use of small freight cars, small train loads, and that the railways have not killed ofif the waterways. Prussian officials are incessantly in search of improve- ments. They send experts into all parts of the world for new ideas. I had supposed that, all in all, the Prussian railways represented the very height of technical advancement, and I have never heard a word to the contrary from any one who has actually made an investigation. The author might have considered the safety of Prussian railway traffic, and the block system; the splendidly constructed and maintained rail- way stations in large and small places; the systematic and orderly ar- rangement of every branch of the service; the comparative regularity of trains ; the frequency of passenger traffic ; the splendid financial results of operation, and a hundred other things. Not counting the millions which the Prussian railways have paid in taxes to subordinate political units, averaging during the last five years almost exactly 13,000,000 marks, or about $3,250,000 annually, they have paid into the State treasury more than enough to pay off every cent of railway in- debtedness, including interest, leaving the great system of over 20,000 miles with all equipment as a net asset in the hands of the State. This, too, in spite of the fact that unprofitable branch lines have been con- structed which private capital probably never would have attempted, and that no account has been taken in the present approximate estimate of the interest on the aggregate of one thousand millions of dollars ($1,000,000,000) which has been taken out of net earnings year by year for general State expenses since 1882." " Large economies were effected immediately upon the acqui- sition of the railways by the State, partly by condensation and co-ordination of staffs and services,^ partly by lopping off the C^) He suggests that the State roads may lose in time what they gain in the utilization of space; but I do not find that the facts justify the suggestion. The avoidance of the waste involved in the return of empties is one of the main secrets of the great success of the German management in the utilization of space. My impression is that still greater economies could be realized by the use of much larger cars for part of the traffic; but opinions differ on this point, and some German experts agree with English railway men in defending the use of small cars. C') Jour. Polit. Econ., Feb., 1906, pp. 95-6. ('") The whole administration was greatly simplified. The Minister of Public Works reckons the yearly savings in the administration of the Berlin, Potsdam and Magdeburg Railway at 150,000 marks, which represents a capital of 3,750,000 Lessons from Other Lands. 329 corporation cupolas in official salaries, and partly by improved methods of operation. The president of a Prussian railway division gets $2,750 a year and the Minister of Public Works $9,000 a year and the use of a house. Think what a saving could be made in our railways if the salaries of railway presi- dents were cut from $25,000, $50,000 and $100,000 to the Ger- man figures, which cannot be considered as out of the question, since presidents of colleges often receive only $3,000 to $3,500, about the same as the Prussian railroad president, including the house rent he has in addition to his salary ; and the Secre- tary of State, Secretary of War, Postmaster General or other member of the President's Cabinet in this country only gets $8,000 a year, which is considerably less than the pay of the Prussian Minister of Railways. The German railways have other advantages over ours in the economies resulting from the fact that they do not have to cover the expenses and emoluments of gentlemen engaged in manipulating conventions, electing railroad candidates and run- ning legislative lobbies. They are also free from the wastes due to competing offices, circuitous routing, etc., from which our transportation system suffers." The service is remarkable for its adequacy and promptness. Trains are frequent in all Sirections and are almost always on time. In addition to the effect of splendid organization, premiums are paid conductors and engineers for bringing their trains in on time.™ The speed is good except on some of the local trains, which seem fast enough for the people they accommodate, and are not as slow as some of the trains in our own Southern States. Altho some of the most rapid experimental runs yet made have been made marks; he reckons the yearly savings in administering and working the Berlin and Stettin, the Magdeburg & Halberstadt, the Hanover & Altenbelcen and the Cologne & Minden at 7,000,000 or 8,000,000 marks, representing a capital of 175,000,000 or 200,000,000 marks. (Page 419 of Ely's report on Prussian Railways, transmitted to the United States^ Government on April 12, 1880, by Ambassador White.) In his report to the English Chambers of Commerce (1886), Sir Bernhard Samuelson said; "The transfer of the railways from private management to that of the State was intended to produce, and has produced, decided economy in the cost of working the traffic, greater uniformity in rates, and increased accommodation to the public; and the result of the inquiries which I instituted in numerous centres of trade, manufactures and consumption, enables n>e to state that these advantages have been secured without any drawbacks." (") The Industrial Commission gives examples of circuitous routing in the United States in which the waste amounted to 60 percent, and even as high as 250 percent of the necessary transportation. (^) Day after day I have timed the trains I was riding on at every station we came to, and those that came into the places where I stopped, and it was a rare thing to find a train that was not on the dot. And this is not merely my observation but the general reputation of the roads. 330 The Railroad Problem. on the German State roads, the}'- have not put in daily operation any long-distance train that makes as high speed as the Twen- tieth Century Limited, from New York to Chicago, on the New York Central, or the trains of the Pennsylvania and the Reading, from Philadelphia to Atlantic City. The speed and the times of the trains in Germany, however, are what the people desire them to be, as we shall see in a moment. Baedeker, the great tourist authority, declares that the German second- class carriages are more comfortable than the English first-class cars. And the English writer, Hole, says : "Many who would ride first-class in England and Prance are content with the second-class German." The German railways also manage the system of refreshments much better than the English do. The German railways, with 32,000 miles of line, carried in 1905 about 900,000,000 passengers and 400,000,000 tons, while our roads with 214,000 miles of fine, carried 715,419,000 passengers and 1,310,000,000 tons. The safety attained on the German roads is one of their strongest titles to respect. We kill more people on our roads every week than are killed on the German roads in a year.^ Taking the averages per million for our railroads and those of Prussia, we find that the railways of the United States kill over six times as many and injure twenty-five times as many passengers as the Prussian roads, while our rate of employees killed is more than three times, and of injured twenty times that of Prussia.'" The management of the German roads is very progressive. Nowhere in the world is technical education carried to a higher point than in Germany, and nowhere else is technical training so insisted upon as a condition of entering the railway service. Expert engineers are constantly at work devising improvements, and commissioners are sent all over the world in the search for new ideas and methods. Altho a large profit is realized on the State railways, this is (2») Our railroads kill about 700 passengers and employees a week, against 580 in Germany for the whole year. And the number of passengers is nearly 200,000,000 greater on the railroads of Germany than on those of the United States. But our roads have about three times as many employees as the German roads, and would have over four times as many if we made as careful provision as the Germans do tor guarding grade crossings and securing safety throuehout the railway system. ** (3») The figures w-ill be found in Chapter XXVI. A German report on our railways by Hoff & Schwabacli, published a few weeks ago and just received (April 1906), contains later German figures than we had previously secured, and chanees the ratios to 654 times as many passengers killed and 29 times as many injured in the United States as in Prussia, and 3 times as many employees killed here and 25 times as many injured as in Prussia. Lessons from Other Lands. 331 not the first aim of the management, but is regarded as subor- dinate to the efficient service of the pubHc and the development of industry." And so well has this primary purpose been ful- filled that the railway policy has been a very large factor in the astonishing industrial development of modern Germany, which has won the admiration of the world. The London Statist says: "The German Government, true to its tendency, is never wreary of accelerating their progress by assisting trade in every way possible. In Prussia, for example, the railways are all State property, and they are worked, not to bring in the most revenue possible, but to promote trade to the utmost. "Moreover, traders are encouraged and assisted in forming all kinds of societies calculated to promote their interests, and the Government continually consults representatives of the different trades. Over and above this, the Government is always ready to use its great influence, not only to open up new markets, but likewise to acquire markets for its traders." (4) This brings me naturally to the point that the German railway management is the most democratic in the world. It is in the closest touch with the people, and except in the means of adjusting labor difficulties and sharing profits with the men, in which the railways of Australia, New Zealand and Denmark excel, it is the most thoroughly cooperative from top to bot- tom of any system in existence. This may seem strange in view of the imperial element that still remains in the German con- stitution, but it is a fact, as you will see. In the first place, the Prussian railways are coordinated in the most perfect manner with the Government telegraph and telephone system, the post office. State canal and inland water- way system, and every other public service. This, however, is true of the State railways in some other countries, and is not the distinguishing cooperative characteristic in respect to which the German roads surpass all others. It is in the direct relations of the railways to commercial interests and the people generally that, with most vital and far- (^■^) Bismarck made revenue wholly secondary in advocating the State system. The policy he outlined was adopted and has been followed ever since. The attitude of the management has been well expressed by G. Franke, a Prussian Government railroad official of long experience, in a recent number of the Archiv fiir Sisenbahn- wesen. "We Germans," he says, "arrange all our tariffs and make changes in them exclusively to further general economic needs of all the people by reductions. In a very subsidiary degree we give effect to considerations of revenue." Hadley says that management for profit prevailed in early years on the State roads both in Belgium and in Prussia, but it was abandoned in Belgium in 1S70, and by Prussia in 1875. 332 The Railways, the Trusts, and the People. reaching results, Germany has introduced the co-operative and coordinative principle into her railroad system. Let us con- sider the railway administration of Prussia, the State in which the plan originated : The railways are managed by the Minister of Pubhc Works at the top (with a national advisory council), twenty-one railway directories, or district superintendencies (with nine circuit advisory councils) and six classes of local officers (operating, machine, traffic, shop, telegraph and building). One of the principal duties of the local traffic office is to maintain a "living union" between the railway administration and the public. The chiefs of these offices are required to get into intimate rela- tions with the people of their localities. Each local traffic chief, "by numerous personal interviews and observations, must inform himself con- cerning the needs of the service in his district, investigate and remedy complaints and evils without delay, and take such measures as will secure the most efficient service." It is also one of his duties to inform the public concerning the organization and administration of the railways. The management has nothing to hide from the public, but on the con- trary desires the public to know exactly what is being done and why. The local advisory councils^^ are composed of representatives from (^*) The beginning of the system was an advisory council organized in tlie Federal domain of Alsace-Lorraine in 1874. Upon motion of the Chamber of Commerce of the city of Mulhausen a conference between representatives of the Chambers of Commerce of Alsace-Lorraine and the Federal railway directory took place October 21, and the composition and functions of the council were agreed upon. The membership was originally confined to the Chambers of Commerce, but later representatives of agricultural and industrial bodies were admitted. The proceedings of the conference made so favorable an impression on the Federal railway commissioner that on January 11, 1875, he wrote a circular letter to the other German railways, public and private, to induce them to assist this movement toward a closer union and a better understanding between the commercial and the railway interests by instituting similar councils. "This arrangement," says the letter, "primarily strives to establish an intimate connection between the persons intrusted with the administration of the railways and the trading classes. It will keep the representatives of the railways better informed as to the changing needs of trade and industry and maintain a continued understanding between them; and, on the other hand, it will impart to commerce, etc., a greater insight into tlie peculiarities of the railway business and the legiti- mate demands of_ the administration, and consequently, by means of earnest and moderate action, it will react beneficially upon both sides through an exchange of views." The railways did not respond at once, and the movement made little progress till the policy of State ownership was about to be inaugurated in Prussia, and then the Prussian Parliament enacted the system of advisory councils into law. The advisory council plan has spread into Bavaria, Saxony, Wurtemburg, Hesse, Oldenburg, Mecklenburg-Schwerin, Denmark, Norway, Sweden, France, Switzerland, Austria, Italy, Roumania, Russia, Japan and South Africa. In most cases, however, especially outside of Germany, the system has not been adopted in a form calculated to make it very effective. For example, France has only a national advisory council appointed by the Minister of Public Works to represent chambers of commerce and agricultural, manufactory and labor interests in different parts of the country; Marseilles, Bordeaux, Rouen, etc., are represented. All tariffs, whether of the State or private railways, are submitted to this body by the Minister before he approves them. But this appointive national council of the Minister has no such vital hold on the railway management as the German elective and thoroughly representative national and local councils with rights established by law. Japan has a national advisory council of 20 persons representing the Cabinet departments, both houses of Parliament, and certain special members with limited tenure, who serve as experts on the council. Bureaucratic influence is said not to have made itself felt; but the system is certainly far less perfect than that of Prussia, which expressly guards against bureaucratic influence by excluding State Lessons from Other Lands. 333 chambers of commerce, labor organizations, farmers' unions, dairy asso- ciations, merchants' clubs, etc.; all sorts of industrial and social com- binations are represented in these advisory councils, and the law re- quires the directories to consult these advisory bodies. The people, organized according to their interests into various forms of industrial union (chambers of commerce, labor unions, farmers' associations, etc.), elect the members of the local advisory councils, and these councils in turn elect 30 out of the 40 members of the national advisory board, the other ten members being appointed, three by the Minister of Agricul- ture and Forests, three by the Minister of Trade and Industry, two by the Minister of Finance and two by the Minister of Public Works, State officials being ineligible. These advisory bodies do actually discuss with the greatest force, clearness and effectiveness all sorts of questions about rates and classification and the conduct of the railroads ; they make their recommendations and suggestions and they are almost always adopted — always, in fact, except in those rare cases where conditions beyond the control of the railway management prevent adoption from being reasonably possible. So that in Germany to-day the railway sys- tem is practically in the hands of the people to manage and direct. The roads are actually operated in the interests of the people on one of the most democratic and cooperative plans it would be possible to imagine. Each railway directory must consult the circuit council on all impor- tant matters concerning the railways in its circuit. This applies espe- cially to time-tables and rate schedules. On the other hand, the council makes recommendations to the directory. In case of emergency the directory may act according to its own judgment independently of the council, but it is required to report all such cases to the standing com- mittee of the council and to the council itself. This provision supplies the elastic element which enables the railway management to combine full efficiency and executive force with the council system. Each council has a standing committee which receives petitions, gathers and sifts evidence and reports to the council.^' officials and by providing for local as well as national councils on a thoroughly democratic and representative basis. In Denmark, Austria, Italy, Scandinavia, Russia and Roumania the system is still more rudimentary. Switzerland at the time of State purchase of the roads adopted the Prussian plan quite fully with both national and local elective councils. And South Africa also has both local and national representative councils, the national representa- tives with the railway managers forming a body of about loo. Agricultural associations and labor unions, however, are not directly represented in the councils, but only municipalities and chambers of commerce, with mining and some special organizations. (33) "The standing committee of the councils is an important body. It meets regularly some time before the full council holds its sessions, and its proceedings form the basis of the deliberation in the council. The committee receives petitions, memorials and other communications. The bearers of these are invited to appear before the committee and to advocate their cause. Questions are asked and answered on both sides, and after all the questions have been presented the com- mittee votes upon the petition or request, usually in the form _ of a resolution adopted by majority vote, recommending the council to accept or reject the demands made in the petitions. The action of the committee is reported on each question by a member designated for the purpose, to the full council at its next _ session. While the decision of the committee is usually accepted by the council, it in no way binds that body. Before the council meets, each member has an opportunity to examine the arguments presented before the committee and the facts upon 334 The Railroad Problem. If, for any reason, the circuit council and the local directory cannot agree, or the question in hand is too large for local settlement, the mat- ter goes up to the national council and the Minister. The national coun- cil meets at least twice annually and deliberates on such matters as the proposed budget, normal freight and passenger rates, classification of freight, special and differential rates, proposed changes in regulations governing the operation of railways, and allied questions. The law requires it to submit its opinion on any question brought before it by the Minister of Public Works, and it has 'the right to make any recom- mendations it sees fit in regard to any matter relating to the railways. Its proceedings are regularly submitted to the Landtag, where they are considered in connection with the budget, thus establishing "an organic connection" between the national council and the Parliament. In this way the proceedings are made accessible to every one and an oppor- tunity is given to approve or disapprove what the council does through parliamentary representatives. The system is one of reciprocal question- ing and answering on part of the Minister of Public Works, the national council and the Parliament. Imagine our railway managers constantly subjected to cross- examination by the people's representatives, under conditions that would make it folly to tell anything but the absolute truth, with books and transactions always under the scrutiny of pub- lic auditors and inspectors, obliged to reveal all bargains, costs, rates, methods and agreements! Imagine our people having a share in the management of the railways through councils and standing committees composed of merchants, manufacturers, farmers, workingmen, etc., elected by chambers of commerce, labor unions, agricultural associations, etc., under laws requir- ing the railway management to consult these people's councils continually as to rates, time-tables, etc., and conform to their decisions so far as reasonably possible, with appeal to a na- tional council representing the business interests of all classes of people and constituting virtually a co-ordinate part of the national railway administration ! Every one free to make sug- gestions and complaints without fear of railway persecution or which its decisions are based. If the advocates of the petitions before the council present new evidence, or if the recommendations of the committee are shown to be unsound, the council simply reserves the decision of the committee." (From the study of the Prussian cooperative system made by Prof. B. H. Meyer for the United States Industrial Commission, vol. IX, p. 977.) This and the earlier study by the same writer, published by the American Academy of Political and Social Science in November, 1857, constitute the best accounts in English of what I regard as the most interesting railway institution I have met with in all my journeys. The accessibility of these studies and the fulness with which Prof. Meyer describes the deliberations of the councils in various specific cases, make it unnecessary for me to go into matters of detail which I should otherwise regard as of vital importance in connection with this study of the German railway system. Lessons from Other Lands. 335 expensive litigation! Every petition sure of fair-minded con- sideration and every important question certain to be investi- gated with comprehensive thoroughness, not to ascertain how the most money can be made for a few railway managers and controlling owners, but to ascertain what is best for the inter- est of all concerned ! What would become of the arbitrary power of Baer, Morgan, Rockefeller & Co.? What would become of the whole congregation of railroad graft and chi- canery, the whole congested slums of railroad politics and finance in this country ! As Chas. Francis Adams long ago pointed out, the German railroad system is "practically a cooperative system, the Gov- ernment being nothing more nor less than a trustee managing a vast industrial organization for the general public benefit," and in constant consultation with local and national bodies representing the interests of all classes of people. Our rail- roads know how to cooperate with each other and with the trusts, sometimes for the public good — too often against it. May we not reasonably ask for a system that will give the people a fair share of influence in the management of the railways? Is it just that the sugar people, beef people, coal people, and oil people should have a large share in rate-making, while most all of our 80,000,000 of people have no share? Especially, is it just when most of the 80,000,000 need a share in rate-making far more than the sugar-beef-coal-oil people et al? (5) German railway tariffs are simple, clear, impartial, reasonable and reliable without being inelastic. They do not possess the abnormal elasticity that comes from arbitrary rate- making under the pressure of individual interests and corpora- tion dividends; but they do possess the normal and beneficial elasticity resulting from the fact that rates are carefully ad- justed to the real needs of legitimate industry through the co-operation of the railway management with the popular councils representing the business interests of the community. An excellent example of the flexibility of German rates and their ready adaptability to the real needs of the hour occurred in the summer of 1904, when the drought so far dried up the upper Elbe as to interfere with navigation. Many boats were loaded with goods and delay would cause distress and loss to merchants and consignors ; so the Government 336 The Railways, the Trusts, and the People. railways put their rates down to the water level and carried the goods at the same rates they would have paid by water. The whole tariff, tho possessing reasonable stability so that merchants and manufacturers know what to count upon, is nevertheless elastic enough to meet the actual changes of condition and the real needs of commerce, as is evi- denced by the fact that over 60 percent of the Prussian traffic is carried on "exception rates" or special tariffs.'* But the special rates are not secret concessions, but are made in the daylight, subject to full discus- sion by representative councils and are open to all alike. The basic tariff is contained in a small pamphlet less than an eighth of an inch thick, — in fact, the gist of it all, for both express and freight, is in two or three pages.'" The essence of the tariff system could be printed on one page of this book, and after a five minutes' explanation you could find for yourself the Prussian rate on any ordinary shipment either by freight , or express. Cost of service, distance, the zone principle and tapering rates, the flow of traffic, utilization of car space, mar- ket conditions, what the traffic will bear, are all considered in making rates. The same general elements enter into the problem as in the case of private railways, which also have to consider cost, distance, market conditions, what the traffic will bear, etc., but the State railways deal with these elements in the light of the public interest and come to their conclusions on that basis, while the companies consider the question in the light of their own profit and decide upon that basis. The German system of rate-making automatically results in tapering rates, or a lesser ton-mile charge as the distance increases. An examina- (^^) Senator Lodge and others have adduced this as evidence that "Govern- ment rate-making in Prussia has resulted in giving discriminations to this traffic." If by discriminations is meant the careful adjustment of rates to all the circum- stances, then over 80 percent of the Prussian traffic is carried at discriminatory rates. But if discrimination is used in the American sense, none of the Prussian traffic is carried on discriminating rates. Is it fair to try to fool the American people with a pun? (^) There is a terminal charge which, in Prussia, is 2 cents per 100 kilo- grams if the freight is going a short distance, and 4 cents for the longer hauls. This division is made so that local traffic may not be overburdened with station charges. The second basic principle is a tapering-distance charge, so much per ton-kilometer, within a certain zone. And the third principle is the special adjust- ment of particular rates to the industrial needs in the light of what the traffic will bear, the cost of the service and all the other elements involved. These principles work out into a tariff (i) for goods in small lots, (2) for general carload lots of at least 5 tons, (3) for carload lots of 10 tons or more, (4) special tariffs in 5-ton lots and in lo-ton lots (I) on manufactured goods, (II) intermediate products, wood, etc., and (III) raw materials and bulky goods of small value, the last having much the lowest rates of all. For example, the ordinary freight rates on first class goods in small lots is 4.4 cents a ton-mile at 30 miles, and 2.2 cents for distances above 315 miles, while tariff on wood and iron not worked, mineral oils, raw material, paper, fruit, potatoes, etc., in lo-ton lots is 2.3 cents a ton-mile at 8 miles and 1.2 cents a ton-mile at 30 miles, i cent at 62 miles and .76 of a cent a ton-mile at 315 miles, and about .7 of a cent a ton-mile on very long distances. For freight in small lots there are 6 zones, with the ton-mile rate growing smaller as the distance increases. Lessons from Other Lands. 337 tion of the following table will make this still clearer than the facts already given. The table is made by taking the Prussian rates per 100 kg. (220 lbs.) and per kilometer, multiplying by 10 to get the ton-rate per kilometer, and then changing German money into American units. Rates on Ordinary Goods in Small Lots in Dollars and Cents Per Ton-kilometer. Distance in Hauling Terminal Total Ton-kilometer kilometers. charge. charge. charge. charge. 10 .22 .20 .42 .042 SO 1. 10 .28 1.38 .0276 100 2.00 .38 2.38 .0238 500 7.00 .40 7.40 .0148 1000 12.00 .40 12.40 .0124 There are many more steps in the Prussian tariff, as we have already stated. But these few will indicate the plan. The ton-km. rate for 1,000 km. is less than a third of the ton-km. rate for 10 km. This table repre- sents the highest class rates on ordinary freight in small lots. The lower class rates and the large mass of special rates run down to much lower levels. In many cases in the special tariffs blanket rates are made that are the same for all distances. German rates are much lower than those of England or France, and tho our average ton-mile rate is below the German, actual rates for similar services are for the most part lower in Germany than with us. For example, take the statement of Hon. Charles A. Prouty, of the Interstate Commerce Commission, comparing rates from his home town, Newport, Vermont, to Boston, with rates for the same distance in Prussia and also in Iowa, where rates are very low for this country. Rates in Cents Per 100 Lbs. Iowa rate Newport, Vt., for same German to Boston. distance rate. Potatoes 19 12^ 9^ Hay 17 II io>4 Butter 46 26 36 Sugar 19 17 10-9 Lumber 102-3 9/4 6.4 Fertilizers 17 9>^ 8 Commissioner Prouty further says : "Last summer a company in which I was interested had occasion to transport considerable quantities of copper wire from Phillipsdale, R. I., to Bradford, Vt., and of dynamos and transformers from Pittsfield, Mass., to the same destination. We paid in less than carloads from Phillipsdale 32 cents per hundred pounds. The corresponding rates in Prussia are 11.08 and 15 cents." The local rates in America are frequently several hundred percent above the German charges for the same distance. For example, the 338 The Railroad Problem. rate on dry goods from Springfield, Mass., to Westfield, Mass., is $1.70 a ton, or 22.4 cents per ton-mile. The Prussian rates for the same distance would be 48 cents, or 6 cents a ton-mile. Even in populous districts and along lines of water competition, where local rates should be low if anywhere, our ordinary rates are several times the corresponding Prussian rates. The following table illustrates the situation by comparing our local rates on dry goods or other first- class freight in small lots with the German figures. L. C. L. Rates in Cents Per Ton-Mile. Prussian Ton-mile ton-mile rate rate on for same Miles. dry goods. distance. Providence to Fall River 18 IS 5- New London to Norwich 15.5 18 S.i Springfield to Westfield 8 22.4 6.25 Harrisville to Central Falls, R. I.. 24 15 4-S Blackstone to Dedham, Mass 30 14 44 The Prussian local rates, less than a third of ours, apply without distinction of locality to towns in the interior as well as to towns along the waterways. Our through rates are higher than they were 65 years ago. We may well wonder whether the local rates have fallen any whatever in the same 65 years. German Railway Commissioners recently in this country, after study- ing our rates, declared that they were in many cases four or five times as high as the German rates on the same goods for the same distances. No existing differences in wages or legitimate traffic conditions are suffi- cient to explain such differences in rates. The average passenger rate in Prussia is .98 of a cent per mile against 2.02 cents in the United States. The average merchandise rate in Prussia is 1.36 cents per ton-mile against .78 of a cent in this country. But the American rate does not include express, which pays very high rates, while the German rate does include express. It also includes large amounts of traffic which in this country is handled by fast freight and private car lines, the earnings of which are not included in the reported railroad revenues. The American rate is cut down by including large amounts of freight carried for the com- panies themselves, for which no charge is made, while the German figure includes only freight actually paid for.'" The German roads carry an immense amount of mail and packages (^^) See report of the commissioners, Hoff and Sciiwabach, who were recently- sent by the Prussian Government to examine American railways and who deal most fully with this whole question of comparative rates. Lessons from Other Lands. 330 for the parcels post, for which they get no pay, while American roads receive large sums for carrying the mails, and the pack- ages for the most part go by express with us. The proportion of bulky, heavy, low-rate freight, such as coal, iron, ore, timber, etc., is very much larger here (where coal alone constitutes i/s of the total tonnage) than in Europe, where the bulk of such traffic is carried by water. The average haul in Germany is 78 miles, against 244 miles in the United States, over three times the German haul, and this cuts down the average mile rate tremendously, so that on two roads run with equal effi- ciency and charging the same rates for equal service involving the same amount of labor and capital the road with the long average haul will show a much lower ton-mile rate. Our low - ton-mile rate is partly due to carriage on circuitous routes and other unnecessary competitive transportation representing a waste of industrial force. And worse yet, our average tells the story of the special rates and secret concessions to favored shippers. Our ton-mile rate does not represent the rates the public has to pay, but is brought below the actual public rate level by the rebates and concessions granted the trusts and combines and other big shippers." The German average rep- resents the rates that all the people pay. Making allowance for express and mail, company freight and private car line traffic, the German commissioners conclude that a proper figure for our average freight rate would be 1.44 cents per ton-mile, while the figure for the Prussian roads would be .95 of a cent. It may be that the pendulum has gone a little beyond the vertical and that this comparison is a little more than fair to Prussia, but the evidence indicates that it is much nearer the truth than the ordinary comparison our rail- road people are so fond of making, that ignores all the differ- ences in respect to express, company freight, etc. If we could accurately allow for the freight carried by our roads at rates below the published tariffs in violation of law, it is quite prob- able that the contrast would be much stronger in favor of Prussia than the figures just quoted indicate. The specific comparisons of actual rate's in particular cases, of which I have a good many, very generally show a higher (2') See the splendid statement of Senator La Follette, on the floor of th^ United States Senate, Congressional Record, April 27, 1906, p. 5,989. 340 The Railways, the Trusts, and the People. ratio against us than the commissioners' averages. Whether their comparison of averages needs trimming or expanding, it is clear that their broad conclusions are well founded, viz., that the Prussian freight rates and express rates are both con- siderably lower than ours, and that their passenger rates are less than half of ours."* The German management has been criticized for not compet- ing with the canals and for not making blanket rates to develop more long-distance traffic.™ It is not my intention to defend (^) Even this ratio does not show the full elevation of our passenger rates. A very large number of the passengers carried on our roads are dead-heads, a fact which has no parallel in Germany. So the divisor used in this country in getting the average passenger rate is much too large. Our 2 cent a mile average represents a cross between the real rates and the free pass, while the Prussian .98 of a cent a mile represents the actual rates paid by the people who do not travel on their nerve, or on the railway managers' nerve. Even on the long runs, as fron^ New York to Chicago, the average rate is over 2 cents, the regular fares running from $20 to $29 for the 950 miles. And in local traffic, in many parts of the country, the fares run between from 3 to 4 cents a mile. The commutation tickets, excursions and dead-heads bring down the average to 2 cents. The average receipts for first class travel in Germany (corresponding to our Pullman) is 2.93 cents; for second class (corresponding to our ordinary coaches, only much less crowded), 1.76 cents; for third class (which suits the mass of the people all right), i cent, and for fourth class (which is also popular), 54 of a cent. The first class is very exclusive, less than half of i percent traveling that way; 9 percent second class; 56 percent third class; about 33 percent fourth class, and iH percent fifth class (the military, which is carried at 1-3 of a cent a mile). The straight fares on single trips are, of course, higher than the average of receipts, running from 2.5 cents to 4 cents a mile first class, and from 1.3 to 2 cents third class, according to the speed of the train. The charge on the fast trains is 50 percent, and sometimes on the very fastest trains nearly 100 percent higher than on the slow accommodation trains. A liberal system of reductions for round- trips, season tickets, school tickets, workmen's tickets, circular tours and tourists' coupons brings down the average. (33) 'p^g reader will find a strenuous criticism of the Prussian railway and canal policy in a new book on "Government Regulation of Railway Rates," by Hugo R. ]\Ieyer, an assistant professor in Chicago University. The book is a brief for the railroads against President Roosevelt's policy of rate regulation, and against State ownership, and the backbone of it is a rabid attack on the (ierman system. Prof. INIeyer has never been in Germany. That was not ne.cessary. In fact, it might have made havoc with his argument and interfered with his purpose. For example, in this book, and in his testimony before the Senate committee, May S, 190S1 he tells us that "one single firm" (the firm of von Bolle, as we learn from p. 387 of the book), "is stabling to-day within the city limits of Berlin 14,000 cows. . . . And within the limits of Berlin one can count, and smell, upwards of 14,000 cows, kept there to supply the population with milk that the railroads are not allowed to bring fram a distance." (p. 156.) Now the great dairyman, C. Bole (not von Bolle), made a statement in the soring of 190S, when Mr. Meyer's testimony was called to his attention, saying tliat he had no cows at all in Berlin; that there was a large number of cows in the city, but that there was no causal connection between that fact and the railway rates on milk, and that of the 600,000 liters of milk required in Berlin daily, only about one-sixth is produced in Berlin and its suburbs. Prof. B. H. Meyer, who visited the Berlin dairy within a few weeks of Prof Hugo's testimony and who brought out the facts in the Journal of Political Economy for February, 1906, also states that in the German article from which Prof. Hugo garbled and misquoted the sentence out of which he constructed his cow-fiction in that very same article on the development of the milk traffic in Germany, the ivriter shows that "the requirements of the agricultural and dairy interests have been met in a most satisfactory manner, and that an experience of twenty years bas met all demands reasonably well." Very properly. Prof. B. H. asks, "whether due respect for fair play and the truth should not have impelled him to give a hint of these things to his American readers, instead of garbling a single sentence from the article." One cannot but admire, however, the generous olfactory sense of a man who can sit in his study at Rockefeller University and smell 14,000 cows in a Berlin dairy, Even if the cows were there, the feat would be remarkable, and when we Lessons from Other Lands. 341 the German policy. I do not feel competent to judg-e whether it is wise or not. But the German people think it is wise and they are in an excellent position to know. The Government owns the canals as well as the railways. It is not a question of competition. It is a question of co-operation and the economy of industrial power. Competent men declare that for heavy traffic discover that the cows were absent, we must admit Prof. Hugo Meyer as a candi- date for rival honors with Munchausen and Arabian Nights. The same tendency to make fiction masquerade as railway economics — a tendency that has been discovered also in the returns of some of the private railways Prof. Meyer admires so much — this same tendency to use imagination in place of reason marks the Chicago man's discussion of the German canal policy, and in fact his whole book. He says the Prussian railways are at fault because they do not make rates to compete with the canals, but calmly let a lot of heavy traffic go by water; that the appropriation of millions proves the railway system a failure; that the crying need of Germany is long-distance traffic on the railways, etc. This crying need is a figment of the professor's fertile imagination, like the smell of the non-existent cows. The German people control their rail\vay rates, and if there were a crying need for more long-distance traffic in their judgment, the rates would be made so as to secure it. I may be mistaken, but I cannot help thinking that the German people are right in relying on their own judgment in this matter rather than on that of any economic professor in Chicago. The indus- trial progress of Germany in recent years is marvelous, as even Prof. Meyer admits. Almost in the same breath we are told that the railways have paralyzed Germany, and that modern industrial Germany is the marvel of the world; that the German railways are merely feeders to canals, and that there has been "a huge increase in the volume of traffic" on the railways; that the German railway policy has caused excessive concentration of population, and that the German distance tariff prevents a high development of long-distance transportation. "The fact is that long-distance transportation is one of the prime causes of excessive concentration of population. The comparative statistics of urban and rural population in the United States and Prussia show a greater percentage of increase in this country than in Germany during the railway age. If the appropriation of millions for canals proves the Prussian railways a failure, then I suppose the canal appropriation of $120,000,000 by New York State, approved by popular vote, is convincing proof to Mr. Meyer of the inefficiency, incompetence and mismanagement of the New York Central. What -would we think of a German writer who should tell his readers that American railways had failed because the Government was still spending money on canals, or because the railways had not kept all traffic off the Great Lakes, the rivers and the oceans? If German traffic can go at less than rail cost from point to point by water, why shouldn't it? And in America, if freight can go at lower cost by the lakes, or round the cape to California, why shouldn't it? Why should our railroads cut long-distance rates to the bone to capture traffic that belongs on the water by the law of economics, and compel local traffic to pay not only its own fixed charges but part of all that belong to the cut-rate long-distance business? Prof Meyer himself gives data showing that the cost of transportation by canal is only a fraction of the cost by railway, but he ignores the bearings of the fact and does not allow it to divert his mind for a moment from the idea that the railways ought to capture the business which the canals are getting. He ignores the fact that the railways and canals are owned by the same people. His state- ment shows that the German railways do compete with the waterways when they think it best, as when they meet the rates of the vessels on the Rhine in order that German coal may compete with English coal (pp. 37-3.8). . But he complains that the Government does not have its railways compete with its own canals and waterways on its own home traffic, and says that railways are handicapped by distance tariff and that "Government-made rates must be machine made, yet he stati" llsewhere in the same book that 60 percent of the Prussian traffic goes on rDecfalratlsrnd these special rates are exceptions to the distance ariflt and are not machine made, but made on the principle of what the traffic will bear tn its best "enseV applied in the light of public interest after full discussion and repre- ""'The°"cSfcago mIJ.°Ts '"o'\"ttra'ted°wit1; the philosophy of the, private ^railways that^h'e can'tTee^anything but, railway tonnage. His only questjon is; ^Does it make money for the railways?" He never asks, "Is it just? Does it maKe lor economy of Tdustrial power?" "Does it tend to the diffusion of wealth and ''°"^;-;oe?n°o?tLThe%*rJss1^n^aX"y"\'^any such standards; doe^ be aware tl"at such standards exist; is entirely satisfied apparently that the Standard Oil and the Beef Trust should have better rate arrangements on our 342 The Railroad Problem. waterways are cheaper than railways can ever expect to be. The Minister of Public Works has stated to Parliament that the canal from Dortmund to the Rhine will cost much less than a fourth track on the railway.. It is also proposed to build a new waterway from Berlin to Stettin at a cost of $10,000,000, and it is estimated that the average charges will not exceed railways than other shippers; can't see anything the matter with our railways; says, "Discrimination is the secret of the efficiency of American railways;" has no word of condemnation for the payment of rebates, the free pass, terminal railroad and private car abuses, the watering and manipulation of stocks, the concentration of railroad power in the hands of a few men for their private benefit, the evil of railway corporation influence in politics, the bribery of legislators, the railroad lobbies, the packed conventions, the control of elections, and the legislation in private interests. The burial of justice beneath finance, this assumption of unethical standards and appeal to the money prejudice that marks the book, is infinitely worse than any misstatement of fact. An author dealing with masses of fact and relying on many sources of information may easily fall into error. Even President Hadley's book, the masterpiece in our railway literature, contains many mistakes of fact and figures, but it is sane in its processes of thought and ethical in its spirit from cover to cover, and one can admire it tho differing from its conclusions. On the other hand, the book under discussion ignores the ten commandmtents in their relation to railway management, treats public spirit and statesmanship as a species of insanity, and evidently regards logic as a lost art. Prof. Meyer's work will not stand the test of fundamentals. He accepts the volume of traffic as a sufficient test of a railway management regardless of the fact that a large part of the volume may be due to the adjustment of rates so as to result in superfluous transportation. He worships flexibility regardless of its quality, ignoring the fact that in many cases "flexibility" is a polite name for fraud, injustice and violation of law; and oblivious of "the importance of stable conditions as an essential element in the healthful development of trade and industry," as Henry C. Adams so admirably puts it in criticizing Hugo Meyer's railway philosophy in the Yale Review for February, 1906. Prof. Meyer also assumes without argument that a low average rate is a final test of good management, and yet this low average may result from illegal rebates and secret or open concessions to favorite shippers, discriminations in favor of the big cities against the country districts, in favor of foreign goods against domestic products, the wasteful use of circuitous routes, the development of long- haul traffic at the expense of local business, etc., etc. Many times he reiterates his objection to Government rate-making because he says the State railways base their tariff on the distance principle; but he never tells us that private railways do the same thing, and that both systems taper the rates for long distances, both make blanket rates, and both provide many special rates adapted to make the particular traffic move and develop business in the best possible way under all circumstances; the difference being that the private railways go beyonpd this and make further special rates to favor certain persons and places and to secure their own profit, without regard to the public interest. The dividing question is not the distance base, but the extent and the purpose of special rates, the latter being the governing element — shall special rates be made only where the public interest requires them, or where they are required for the profit of railroad owners or favorite shippers? Prof. Meyer even criticizes the German Government for making railway rates in harmony with the protective tariff instead of knifing the law as our railways do. He cites American cases where "the discrimination in favor of cement imported on through bills of lading often entirely offset the customs duty on cement," and "the general freight agent of the Illinois Central Railroad Co. shows that salt had often been shipped from Liverpool through New Orleans to Chicago for a charge less than that made on domestic salt from New Orleans to Chicago" (pp. 340-1), and gives us to understand that as this trade helps certain ports, and vessels coming west across the sea need cargo for ballast so that they sometimes carry cement, salt, crockery, plate glass and similar articles free, and have at times even paid for the privilege of carrying them; therefore, our railroads have a right to nullify a law established by the United States Government for the pro- tection of home industry by carrying merchandise from the port of entry on our coast to destination at less than the rates on domestic products. Opinions may differ as to the wisdom of the protective tariff, but as long as the law is on the statute book the railways have no right to cancel its effect; the right of repeal is in Congress, not in the railways. Mr. Meyer also defends the basing-point system which has been condemned by the Interstate Commission. He claims that "the basing-point system decentral- Lessons from Other Lands. 343 .38 of a cent per ton-mile, including canal tolls and port charges." If one big trust owned both the waterways and the railroads in this country, would the railroads take freight that could be sent by water at lower than actual cost? That is the situation in Germany, where the big People's Trust owns both the railways and waterways. As to the question of develop- ing long-distance traffic, let me quote the query so admirably put by Prof. H. C. Adams : "Is it absolutely certain that the concentration of industry and the wide diffusion of the product is in all respects to be preferred to the diffusion of industry and the concentration of the railway haul?"" Is it clear, we may also ask, that it is best to have the meat business concen- trated in a few cities where the big packers are? Is it clear that it was wise to blight New England farms by blanket rates from the West on all sorts of agricultural products? A co- operative commonwealth could have the blanket rate and the diversified industry also; but when we must choose between diversified industry in the various sections of the country, with tapering rates and a moderate haul on the one hand, and concentrated industry with blanket rates and a big haul on the other, it is by no means clear that a wise management, looking at the public good as well as railway profit, would not decide to izes trade" (p. 293), and attempts to prove it by an analysis whicli would be considered a rich piece of humor if found in one of Mark Twain's books instead of a solemn' book on railways. Mr. Meyer's treatment of the Interstate Commission's record and decisions IS wholly misleading, but it would take too much space to attempt that subject here. I have already spent far more time with the book than it 'deserves; far more time than it v/ould have received except for the fact that it had been so widely distributed by our railroads as their champion argument. I leave it now, referring the reader to the criticisms by H. C. Adams, B. H. Meyer and Ray Stannard Baker, in the Yale Review (February), Journal of Political Economy (February), dnd McClure's (March), 1906. Adams says that the writer's assumptions in respect to controverted questions relating to the tests to be applied in judging of railway managements "vitiate his entire treatise." B. H. Meyer speaks of "the unreliability of the references" given by Hugo Meyer, and says that Hugo Meyer misquotes and misrepresents German and French authorities cited by him, giving the reader to understand that their views are "diametrically opposed to the views they really hold." He also says that "bias is the unifying principle of the book." Ray Stannard Baker says: "The work throughout is marked by singular bias and prejudice. The Railroad Gazette, which is itself in possession of sufficient bias to make it hard for it to see the real weight of the wrongs our railroads are guilty of, nevertheless has fairness enough to say editorially of this book (Dec. 1, 1905) : 'We deeply regret that the learned professor should have approached his subject with such unmistakable evidences of partisanship and bias.' " (*>) Page 45, Regulation of Railway Rates, by Hugo R. Meyer, Assistant Professor of Political Economy in Chicago University. (*i) Yale Review, February, 1906, p. 420. Just as men seeking money at first for its utility often come at last to seek money as an end in itself, regardless of the real net value or the sacrifice made in getting it, so railway men seeking traffic develop after a time an insatiable appetite for tonnage, regardless of the general industrial and social effects of the methods by which it is secured or the waste entailed by superfluous and unnecessary trans- portation. 344 The Railways, the Trusts, and the People. put everything on wheels, but would establish and maintain the policy of diversified industry as the German Government and railway management, in consultation with the commercial councils, has done. The greatest difficulty the German railway managements have to contend with is the conflict of sectional interests, which exist in Germany no less than in the United States. The strug- gles between New York, Boston, Philadelphia, Baltimore and the Gulf ports for transportation advantages, the East and the West, New England and the Mississippi Valley, have their counterparts in Germany, and no railway management can eliminate them. Nothing but cooperative manufactures and agriculture on a national scale could even approach a harmonization. The conflict of sectional interests is harder to deal with in Germany than in the United Sates because the national spirit has less strength there relatively to local or State interests.'^ Germany has been a nation for only thirty-five years, a very short time for the growth of national unity. The methods used for the adjustment of sectional interests must be accorded the highest praise. The adjustments them- selves may not always be what a disinterested observer might think best, but the methods are beyond criticism, as any one familiar with the system of national and local councils above described will realize. In Germany questions of sectional interest are decided by fair, open, earnest, exhaustive discus- sion of the representations of all the interests involved. In the United States questions of sectional interest are decided by secret conference and arbitrary action of a few powerful individuals acting with sole reference to their private profit. Under the German system, New England, Kansas, Colorado, etc., v/ould have a full hearing and a vote in determining the (*2) Most of the men in Germany were born and brought up under separate State allegiance, before the States were united. The first men born under the union only began to vote ten years ago. We have been a nation almost a hundred years longer than Germany, and after our federation had been in existence over eighty years the conflict of sectional interests brought on a civil war, out of the fire and smoke of which came a national spirit far stronger in relation to State interests than the national spirit as yet developed in Germany. When Germany attains a national unity as strong in relation to State interests as our Union is, it is probable that the railways will all become national property instead of State property, and the Federal Government will not only supervise and regulate the roads, but directly operate them. It is doubtful if this could greatly increase efiiciency, for the service is already unified to an astonishing degree, but it would certainly make it easier to deal with sectional differences. Lessons from Other Lands. 345 railway policy. Under our system, the destinies of New Eng- land, Kansas, Denver, Spokane, etc., are determined by decree of Wall Street's railroad kings and trust magnates without a hearing and without consideration of anything but the profit of the railroad owners. In dealing with imports the German roads defend and sus- tain the customs duties intended for the protection of home industry instead of nullifying the protective tariff, as our rail- ways do wherever it conflicts with their profit. It is interesting to note, however, that the German Govermnent does not care to protect home industries so far as to pay too much for its rails. In 1890, for example, the Krupp Works asked the Ger- man railway administration $35 a ton for rails at the very time it was supplying Roumania with the same rails for $27 a ton. In order to meet this system, the German railways did just what President Roosevelt has done in relation to our Govern- ment and canal possessions in Panama — got tenders from abroad as well as at home, and took the best offer that could be secured. The German railways, it is stated, " have re- peatedly favored the cheaper offers of foreigners, especially English and Belgium works," " when the big German works charged too much. One of the specially refreshing points about the German railway administration is the certainty and promptness with which the State railroads pay damage claims. There is no quibbling, no unnecessary delay, no expensive litigation, but investigation, consultation and prompt and full settlement. With us, on the other hand, there is much truth in Mr. Rus- sell's remark that "except to favored firms and as a disguise for illegal rebates, the damage claim belongs to the realm of humor." It is either a joke or a costly experiment in the inefficiency of lawsuits. Witnesses representing large bodies of shippers told our Senate committee last year that their asso- ciations had decided it was generally useless to sue the rail- roads ; it cost more than it came to. In Germany the railways not only pay the ordinary damage claims without a battle at law, but for a trifling sum you can insure the arrival of any shipment at any point within a stated time, and for every hour of delay the Government will pay a heavy penalty. («) Hole, National Railways, page 255. 346 The Railroad Problem. The policy of the State railways toward education and toward labor is very liberal. School children get 66 percent to 70 percent off on monthly tickets and 75 percent off on yearly tickets, and can ride on all trains. Thus the third-class rate on a monthly ticket is half a cent a mile, or on a yearly ticket a third of a cent a mile. If there are several children in the family the rates are cheaper yet. Workingmen pay i pfennig per kilometer (one-third of a cent a mile) in Prussia, and it is about the same all over Germany. This rate is 50 percent off the normal fourth class rate and apphes on journeys to and from work up to 31 miles. For long distances 30 workingmen together can get 50 percent off of third class rates and 25 percent off of fourth class. On the Stadtbahn and Ringbahn or elevated railways that run across and around Berhn, and are owned and operated by the State in con- junction with the suburban roads as one system, the ordinary fares are 2 cents anywhere from one to five stations (about 15 miles), and 5 cents for any distance, the maximum being about 31 miles. But for working people there are tickets at still lower rates ; i pfennig per kilometer (half the fourth class rate and even less on the longer trips. Weekly tickets for 12 trips, 5 kilometers out, cost 60 pfennig, or 15 cents — iJ4 cents a trip. A worker's weekly ticket for any distance on the system (Stadt,.Ring, and suburban roads) running out as far as 31 miles, cost 48 cents, or 4 cents a trip." This rate applies between any two stations ; from Charlottenberg to Fiirstenwalde, for example, the working man or woman can ride in and out the 31 miles on a weekly ticket for 2 marks a week, or 8 miles for a cent. Monthly tickets may also be bought allowing you to ride as often as you please, twenty times a day if you like, or all the time if it suits your taste. The rates are 72 cents a month third class, and $1.08 second class, for a distance from one to five stations, and $1.08 a month third class, and $1.68 second class, for any distance on the Stadtbahn and Ringbahn. These monthly tickets may be bought by any one. Business and profes- sional men, especially doctors and drummers, are very fond of them. The liberal passenger policy of the Government for the amelioration of labor conditions, and the promotion of education and social inter- course, extends even to the sleeping-car service. At one time private car lines supplied all the sleepers on the German roads, but now the (") Similar concessions to working people are made at other German cities and at the big cities in other European countries, London, Paris, Vienna, Buda- pest, Brussels, etc. The workers' rates on the JJelgian State roads are consid- erably below the Prussian rates, but the workmen's fares in England are nearly- double those of his German brother. An examination of conditions in the leading capitals in Europe by the London County Council in 1893, revealed the fact that the English worker paid 78 percent more per mile than his confrere on the continent. (Hole, 257; Edwards, 103.) And the contrast is still greater now. The difference in wages, however, for the two countries, appears to be quite as great for many classes of workers, altho railway men average higher pay in Prussia than in Great Britain. Lessons from Other Lands. 347 Government runs sleeping cars of its own, in which the traveler may have a room to himself with two berths and complete toilet accessories for $2.50 from Frankfort to Berlin, for example. The same accommoda- tions in a Pullman car for a similar journey, say from Rochester to New York, would cost $7; but you can undress in the aisle and go to the public room at the end of the car for your toilet conveniences for $2.50 a night, the same as the German charge for what we would call a stateroom. The profits of the German railways are very large, amount- ing to one-third of the total receipts, and the net annual profits for the last ten years, after covering interest, depreciation, extensions, improvements and sinking funds, have averaged between 5 and 6 percent on the total cost. For the Prussian railways alone the receipts in 1904 were $375,000,000 and the operating expenses 60 percent of the re- ceipts. The receipts increase about 11 percent a year, and the working expenses do not keep pace, so that the net profit has a constant tendency to expand. The gross profit grew from $125,000,000 in 1896 to $150,000,000 in 1904. The net sur- plus, according to the budget for 1905, after all expenses and interest charges are paid, including new equipment, extensions, special funds, etc., is about $120,000,000. Hugo Meyer and other railway critics say that the State railways should reduce rates instead of making these large profits. The German roads are constantly reducing rates," and, (^) There is a lengthy statement of German railway reductions in an article on "The Development of Freight Rates on the Prussian State Railways," Archiv fiir Eisenbahnwesen, 1905, pp. 95-100. The State railways have made many large reductions both by direct lowering of rates and by changes in the classification. By the later method alone the following reductions have been made from the classifications of 1879; In the case of articles taken out of carload, class B, into special tariff I, 25 percent. Articles taken out of carloads, class B, into special tariff II, 42 percent. Articles taken out of carloads, class B, into special tariff III, up to 63 percent. Articles taken out of special tariff I, class B, into special tariff II, 22 percent. Articles taken out of special tariff I, class B, into special tariff III, up to 51 percent. Articles taken out of special tariff II, class B, into special tariff III, 26-37 percent. In 1878 the special or commodity rates embraced 160 items, and in 1904, 364 items, and over 60 percent of the ton-mileage was carried at special reduced rates and not under the normal class tariffs. As instances of reductions in the special rates themselves, take the following: "The reduction made in 1890 on the rates for raw materials amounted to 1,500,000 marks; on fuel, in 1897, 12,000,000 marks; the 20 percent reduction on fertilizers in 189s, 2,350,000 marks; the emergency rates on ore and coke (in three districts) in 1886, 1,560,000 marks; the readjustment of rates on ore and coke in 1893, 2,570,000 marks; and again in 1901, 3,200,000 marks; introduction of the export rate on sugar in 1901, 1,100,000 marks; ore rates (in certain districts) in 1902, 723,000 marks, etc." . . The rates on coal and coke have been reduced under State ownership from 10 to 26 percent in the Ruhr District, 8 to 27 percent in the Sahr District, and 10 to 24 percent in the Upper Schlesien District, etc. From Konigshutte to Bres- 348 The Railzvays, the Trusts, and the People. as we have seen, profit is distinctly a secondary consideration; yet it is true that they still retain a wide margin of profit. Personally I doubt the wisdom of this," but I do not regard it as ground for criticizing the German railway administration, because the policy adopted is the deliberate choice of the Ger- man people, acting through their representatives in Parliament in consultation with commercial interests. If Germany thinks best to raise $120,000,000 for public purposes through the medium of the railway rate instead of raising it by means of increasing the general tax-rate, that is no reason to criticize the railway management. The transportation tax is paid by the whole community anyway, as it enters into the prices of commodities. The case is wholly different from that of a private railway, for its profits constitute a tax levied upon the public for the benefit of a few individuals, while the profits of the German railways go back to the public that pays the rates. The capital of the German roads is being gradually cancelled. Under the Prussian law of 1882 the Minister is obliged to pay off three-fifths of one percent a year, and in fact he does pay off more than that." A high official in the Prussian railway service said in answer to my, question on this point: "The total cost of our railways has been 7,500,000,000 marks, and the railway debt is about 4,000,000,000 marks." The French Government has nearly as large a railway debt, about 4,000,000,000 francs, and does not own the railway's. The German railroads have paid for themselves long ago so that the whole debt could properly be treated as general debt and not railway debt, and the rates could be reduced to the level lau, for example, the reduction has been ^^ percent; from Konigshutte to Stettin 32 percent; from Konigshutte to Posen 19 percent; Chorzou to Ostrowo 42 percent; Chorzou to Kreugburg 40 percent; Essen to Berlin 10 percent; from Essen to Magdeburg 14 percent; Essen to Hamburg 26 percent, etc., etc. Other tables are given showing reductions of 33 to 44 percent on iron ore, 10 to 35 percent on pig iron, and other reductions ranging from 28 to 54 percent with an increase in the volume of traffic as high as 549 percent. (•16) My own criticism, not of the German railway management, but of the German tax policy, is that the incidence of taxation does not seem to me so wise or just under the present system as if railway rates were lowered to the level of operating cost and fixed charges, including a good, swift sinking fund; and the State treasury were filled by progressive taxes on incomes and a gradually developed assessment of the unearned increment in land values and other monopolies. (*^) When the policy of State ownership was adopted, the Landtag fixed the capital value of the railways at the amount of the entire debt of Prussia up to April 1, 1880, thus saddling the whole national debt on the railways. The Landtag also limited the amount that could be taken in any one year from railway earnings to meet a need of the budget which would otherwise have to be provided for by a lean; provided for a railway reserve fund of i percent of the debt, and stipulated that surplus earnings beyond this i percent should be used to pay off the railway debt except so far as another use may be assented to by Parliament. Lessons from Other Lands. 349 of operating cost, including ordinary taxes and depreciation, without injustice to any interest involved. The German railways treat their employees well ; take every reasonable precaution against killing or maiming them; care- fully avoid overworking them; pay them excellent wages according to the general wage level in Germany;*' pension them when their working days are over, and make provision for their widows and orphans,*' and give them a share in the management of the roads through their right to help elect the representatives who finally determine the policy of the railways and the conditions of the railway service. The crowning glory of the Prussian railway management in the employment department is a civil service system. The higher employees must have a university education or graduate from a technical school before they take the State examina- tions for the railway service. Construction men, engineers, etc., must take a thorough technical course and then pass two State examinations, and before they take the second of these examinations they must have been in practice a number of years, 8 to 10 years' successful practice in private employment being the ordinary basis for the second examination. So the State railways get the cream of the technical skill of the country. Employees who have to understand the law, such as inspectors and others in the railway directories, up to the presidents, take first a uni- versity training with a legal education, so that they become lawyers, then they pass the first civil service examination, after which they must practice four years before they take the second examination. They can then apply to the railway department for employment. When accepted (^s) The German railways employ 550,000 persons and pay $187,500,000 a year in wages. This gives an average of $345 a year against $300 in Great Britain, the the general wage level as given by Mulhall for all common employments is very much higher for England than for Germany. So it is clear that the average pay on the State railways is much above the average pay in private employ. Average railway wages in the United States are $630, according to the returns of the rail- ways tabulated in the Interstate Commerce Commission's book of statistics for 1904; but this average includes the giant salaries of our railroad managers and officials. In addition to wages, all employees of the Prussian State railways receive allowances for house rent, amounting to $28 a year for the lowest class, $75 for the fourth class, $125 for the third class, and $160 for the second class, and $200 for the first class. (•">) See Chapter XXVIII. The German railways pay about $700,000 a year in pensions to employees, $350,000 a year to widows of employees, and $15,000 a year for the burial of employees. If our railways paid $30 funeral expenses for each of the employees they kill, without counting those who die a natural death, it would cost them $100,000 a year. 3SO The Railroad Problem. they serve one year's apprenticeship to learn the railway service, and if they make a satisfactory record they receive permanent appointments and are in the service for the working years of life except in case of serious misconduct or voluntary resignation. The Minister selects the men having the best examinations and rec- ords, taking those first in order if as good as the others, — ^both time and quality being duly considered. For the lower grades the rules are not so exacting. Practical examinations must be passed before permanent employment can be secured, but a college training and years of practice in private life are not required. The law gives soldiers the preference in some work, such as station service, but they must pass the examinations satisfactorily before per- m.anent appointment. The presidents of the railway directories make these station appointments. After definite appointment on the perma- nent service a man cannot be discharged except by judicial action after hearing. The division president may suspend, but cannot discharge. The common workmen do not come within the scope of the civil service examinations. They are elected by the station masters, superin- tendents of shops, etc., and are subject to discharge at the pleasure of the appointing power. But the care in the selection of the upper ranks in the service, the thorough publicity that attaches to all railway affairs, and the constant examination and discussion of them in the representa- tive councils protect even the employment of the lowest grade of labor from any serious abuse." Public sentiment in Germany is overvifhelmingly with the State railways. Not that there are no complaints or opposition — few things human are free from complaints and opposition — but the complaints and the opposition are relatively insignifi- cant. Public opinion in the mass is with the railway system. This is not only my own conclusion after an earnest effort to get at public sentiment among all classes, but is the conclusion also of other American students of the German railway situa- tion. Prof. Ely, who was a postgraduate student in Germany when the State railway policy was adopted and has been familiar with the Ger- man system for many years, said in 1888 : "The proper railroad system for Germany was still an open question ten years ago, but now it is no longer a problem of the day. It is settled, and the settlement is indorsed by an overwhelming majority of the German people of all (=1) Such IS the civil service of the Prussian railways as described to me by Dr. A. von der Leyen, who holds a high position in the central office of the railway administration. Our hope is that the progressive Prussian management will apply the profit-sharing and co-operative principles that have produced such good results in Denmark and New Zealand, and also establish arbitration boards tor the settlement of questions that may arise between the management and the men. Lessons from Other Lands. 351 shades of political opinion. One of my professors while I was a student in the University of Halle seriously questioned, in 1877, the expediency of State railroads, and brought against them precisely those arguments which we hear to-day in America ; but actual experience has made him even an enthusiastic adherent of the Prussian system." " Mr. Russell, who has just traveled through Germany for the special purpose of investigating the railways, says : "After many years of ex- perience the people of Germany would regard as something straight from Bedlam a proposal to return to the private ownership of their railroads." " The American consul at Berlin said to me : "The German railways are the best managed roads in Europe. It is not possible to satisfy every one, but the people would not think of returning to the company system." '^ An English agent of large British interests whose business keeps him travehng in Germany most of the time and gives him a wide acquaint- ance with German merchants, said in reply to my question ; "Mercantile interests, as a rule, are heartily in favor of the public management of railways. The fact is, the merchants and business interests practically manage the railways themselves, or at least exert so much influence in the management through their representative councils that they are sub- stantial partners in the control as well as in the profits." Interviews with many business and professional men in various parts of Germany were almost always of similar effect," and in the few cases where objections to State ownership were expressed the facts recited as reasons were generally so absolutely insignificant compared to the complaints made against our system that the effect on an American was (") Problems of Today, p. igo. (°^) Everybody's Magazine, February, 1906, p. 180. l^^S The American consul at Chemnitz, in a report to our Government on the Prussian railways, says: "Earning enormous sums, serving commerce and manu- factures in times of peace and all strategic purposes in times of war, they have more than justified the arguments that urged the Government to own them and the liberal policies that constructed and developed them in all parts of the Em- pire. . . . More than half of Prussia's income is derived from railroads. . . . No other branch of public property pays so surely and so well . . . the ten- dency all over the Empire is toward State and city ownership of all kinds of trans- portation facilities, railroads for steam lines, electricity, etc., as well as of tele- phones, telegraphs and other means of communication." (") At a meeting of German business men of the middle class, I asked for an expression of opinions about the State railways as compared with private management. A gentleman who was evidently a leader among these merchants and manufacturers replied: "Nobody in Germany has any doubt about the advan- tage of State management of railways except some of the men who think they might reap personal benefit through special favors on private railways, some poli- ticians who criticize the State railways because of their opposition to the admmis- tration in general, and some theorists who have an idea that Government should confine itself to police duty. Most of those who opposed State ownership in 1879 have become its friends through witnessing its beneficent results. And we are sorry for our friends in America who suffer the ills of a company system which we were long ago liberated from." The speaker closed by saying that if he had not correctly represented the sentiments of those present, he hoped dissent would be freely expressed. No dissent was forthcoming, but on the contrary a gentle- man moved that the meeting show its concurrence in the statement that had been made, and asked for a rising vote so that the American visitor could see for him- self what their feeling was. Every man in the room, I believe, rose to his feet in token of agreement with the remarks above quoted. 352 The Railways, the Trusts, and the People. one of humor rather than argument. There was never a charge of dis- crimination or watered capital or railway pressure on legislative bodies or other political abuses, nor arbitrary exaction of unreasonable rates, but merely the dissent of members of the minority from decisions of the majority in councils and Parliament, and the conditions and policies thereby established. Prof. B. H. Meyer, than whom there is no higher authority in America, and who has just returned from a visit to Germany, refers to the re- marks of Prof. Hugo Meyer in relation to German opposition to the railway system and says : "Regarding the 'opponents' of the Prussian railway system in Germany in the sense in which I understand the author to represent the opposition, I could find none of consequence in Berlin, and I inquired diligently among all classes of people. No doubt one can discover cases of discontent, but relatively the discontented class is a negligible quantity and immaterial." He had interviews with leading merchants, and with "the only Parliamentary leaders who ever express serious criticisms," and with the editor of Die Nation, quoted by Hugo Meyer as criticizing the railway administration, and with others, seeking out those who were said to be discontented, and he found a very few dissatisfied people who would prefer private roads "with strictest governmental conrol of rates" instead of State owner- ship. But Prof. Meyer says : "Nearly all Germans hold to the con- trary." == The Germans believe that whoever owns and operates a country's transportation system virtually owns the country; and that the public highway should be managed for the public benefit and not for private profit. This is the keynote of their railroad philosophy. We have seen that the French and English systems of pri- vate ownership and energetic public control, while tending to secure the dominance of public interest for prevention, to a considerable extent, of the positive abuses to which private railways in a state of liberty are prone to devote so much of their attention, fail nevertheless to secure, in any reasonable degree, the dominance of public interest for action. The Ger- man system secures the dominance of public interest both for prevention and for action. It secures the dominance of public interest for prevention much more completely and perfectly than the French or English system — as one might expect, since it is hardly possible by any amount of control to get as good (==) Journal of Political Economy, February, 1906, pp. loo-ioi. Prof. Meyer says he has "always opposed Government ownership for the United States," but feels that "this is no reason to refuse to recognize the merits of the Prussian system. Lessons from Other Lands. 353 results from the other fellow's servants as you can from your own — and it secures also the dominance of public interest for positive service. The management does not have to be co- erced to act in accord with public interest ; for those who have the actual possession and active management of the railways have also the fullest motive to act for the public benefit, are employed for that purpose, and have their success measured by that standard. Other nations have attested the success of State ownership in Germany by that best of all indorsements, sincere and earnest imitation. Switzerland, for example, has nationalized her rail- ways, basing her argument partly on Germany's successful experience ; Italy also has undertaken the operation of her roads, hoping she may attain some of the benefits Germany has secured from her Government railways ; and now Japan has decided on the policy of State management, influenced largely by Germany's example, tho it would not be fair to for- get that the success of the State roads of Belgium, Denmark, New Zealand and other countries has also contributed to the spread of the public system. Meanwhile the German railway management (fully con- scious that their system, fine as it is in many ways, is still capable of great improvement) are ransacking the world for new ideas and suggestions, and the people's representatives are constantly discussing what can be done to make the roads still more serviceable to the public. And when a change in the public interest is voted, the way is open to the execution of the plan, not only without resistance on the part of the railway managers, but with their cordial co-operation and earnest wish to make the railroads just what the public — the stockholders and owners of the roads — want them to be. SWITZERLAND. Until the 20th century the railways of Switzerland were in private hands. Now all the principal lines are owned and oper- ated by the Government except the St. Gothard, which is to be taken over in a few years when the franchise conditions permit. The question, of State purchase was first submitted to the people on a referendum vote December 6, 1891, with the fol- lowing result: 354 The Railroad Problem. Total vote 420,500 For purchase 130,500 Against purchase 290,000 Majority against purchase I59>500 On the 20th of February, 1898, the question of national ownership of railroads was again submitted, a referendum being taken on an act providing for Government purchase of the five main railroad lines of Switzerland (the Jura-Simplon, the Northeast, the Central, the Union and the Gothard), with nearly four-fifths of the total mileage of the country, or 1,758 miles, against 480 miles for all the rest of the roads ("sec- ondary railways") combined. The question had been long and bitterly discussed. The arguments pro and con had been thor- oughly considered.' This second vote was as follows : Total vote 560,893 For national purchase 384,382 Against purchase 176,511 Majority for public ownership 207,871 Never had there been a more general expression of public opinion in Switzerland since the adoption of the referendum constitution in 1874. In Zurich, for example, 91 percent of the voters registered their opinions on the measure ; in St. Gallen 83 percent, and even in the mountainous Cantons, where heavy snowstorms interfered, 74 to 80 percent took part in the refer- endum. The big majority for public ownership was a surprise even to the warmest friends of the measure. The Ziiricher Post said the next day : "The most audacious optimist had not the remotest idea of the possibility of this result; we anticipated only a majority of 50,000 in favor at the most." (1) Consul General James F. DuBois, in his report to the United States Govern- ment (Feb. 2ist, 1898, U. S. Consular Reports, vol. 56, p. 584) says: "There has been, since 1891, a great change in the minds of the people of Switzerland concern- ing the Government ownership of railroads, and this change has been brought about by a thorough discussion of the subject in the press and on the platform. Never before in the history of the Republic has such a bitter contest been waged, and never before has the Government received such a large majority." Lessons from Other Lands. 355 The vote of 1891 was on an act for the purchase of the Central Railroad at a high figure.^ The proposition in 1898 was for the purchase of practically the whole railway system at figures that were fairly reasonable. The Federal Assembly had, however, prior to the vote of 1891, asked the Bundesrat to submit proposals for the purchase of all the railways and draw up a plan for their administration, so that the people knew in 1 89 1 that the whole question of nationalization was really at issue. In fact they had known this long before 1891.^ The (2) This, together with the belief that the nationalization had not been thought out as carefully as it should be, led some of those who favored nationalization to vote against the act of 1891. I talked with a number of leading men who voted against the proposal of 1891 and for the broader plan of 1898, and some of them said: "We voted against the scheme of 1891 because it was only a half measure and the price was too high." Prof. Louis Waurin, of the University of Geneva, said he voted against the bill in 1891 not because he was opposed to the measure, but because he thought it should be more thoroughly considered before action was taken. The second edition of the scheme would probably be better than the first. Another leading thinker said in 1891: "I am in favor of the nationalization of railways, and that is the reason I shall vote 'No.' The plan has not been fully thought out. It must come and I want it to come, but I want it to come after full consideration and in the best possible form." With the mass of the people, however, the vote went according to their broad convictions on the subject of nationalization. (3) Altho the referendum of 1891 was the first time the question had gone to the people, it did not by any means represent the first agitation of the subject, nor the first action taken in Switzerland in reference to State ownership of railways. In 1849 at the request of the Federal Assembly, the Bundesrat (or national execu- tive committee which is chosen by the Federal Assembly in joint session) employed two eminent railway authorities from England, Robert Stevenson and Henry Swin- burne, to draw up a plan for a Swiss railway system. The experts reported such a plan in 1850 and recommended the construction of the railway system by the State. The Bundesrat sent to the Assembly in 185 1 a railway bill for the building of the railways jointly by the Federation and the Cantons or States, declaring, however, in its message, that it would have preferred building by the Federation alone, had it not been for the limited financial resources of the Federation. The bill proposed to put each of the railways under the control of an administrative council elected in part by the Federation and in part by the Cantons. Both branches of the Federal Assembly, the National Council and the Council of the States, referred the bill to commissions for investigation. The majority of the first commission reported in favor of a State railway system, basing their report upon both economic and political grounds. The National Council, however, decided in favor of private enterprise and accepted the minority report by a vote of 68 to 22, July 8th, 1852. In 1857, in a report to the Bundesrat, the Post Office Department declared that "the repurchase of the Swiss railways by the Federation is desirable as a matter of principle," and in preparation for "repurchase at the expiration of the first period of 30 years for which charters have been granted," the department advised (i) "that there shall be paid annually into the Federal treasury a certain sum which shall constitute a repurchase and amortization fund; (2) that this repurchase fund shall be applied to the acquisition of Swiss railway stock rather than be put out at interest; (3) that in case of a possible general fusion the Federation shall strive to assume all new stock which may be issued." In 1862 national purchase of the railways by voluntary agreement with the companies was powerfully advocated by Stampfli, President of the Federation and well-known later as President of the Tribunal of Arbitration in the Alabama Claims case of the United States against Great Britain. The discussion awakened by Stampfli attracted much attention during the years following the publication of his pamphlets and drew other strong men to believe in nationalization. Excessive building of railways in the seventies was followed by "a season of business depression and a general railway crisis which affected not only all railway companies, but also the financial interests of the most remote sections of the country."' This brought new proposals in 1877 for State purchase or State opera- tion with private ownership, and a high Swiss authority says: "It cannot be doubted that if the State, during this period of depression, had followed the advice of experienced and far-sighted men and acquired the most important lines 356 The Railways j the Tntsts, and the People. case was really decided on principle, and the dominant factor was the difference in the degree of popular education on the subject at the two periods. One factor in the final vote, tho a very small factor compara- tively, was the experience of certain abuses incident to the pri- vate railway system. Guyer Zeller, president of the Swiss Northeast, used his power despotically, and a large body of the people were ''heartily sick of the high-handed arrogance of the railroad management." Then there was a great strike on this road in 1897, which helped to convince the trade unions of the necessity of State ownership. The men won the strike and got the increase of wages they demanded, but they did not like the attitude of the companies nor the methods they were com- pelled to resort to for the settlement of difficulties. There were many besides the workingmen whose views were influenced by the strike. I was told with great emphasis that "for two whole days the entire traffic of the Northeast Railroad was stopped, and the business of the public blocked." I wondered what these people would think of one of our giant strikes when business is blocked for weeks. The farmers of Switzerland complained of high rates and poor service. "The time tables are bad," they said, "and the lines do not make proper connections. If you are travelling any distance you may have to spend a night on the road some- where without any necessity for it." of railways, it would have come into possession of a great network on remarkably favorable terms." In 1883, when the charters of a number of railways expired, the question of purchase again came to the front. The majority of the commission chosen to investigate the question reported in favor of purchasing at least the Central rail- road, but the Bundesrat and the Assembly decided against purchase largely because of "the impossibility of accepting the accounts of the railway companies as a basis for the determination of the purchasing price." In 1887 the Bundesrat made an agreement for the purchase of the Northeast railroad. The shareholders ratified the agreement but demanded additional con- cessions, which the Government refused to grant and the purchase fell through. In 1890 the Bundesrat resolved to purchase 30,000 shares of the Jura-Simplon Company, which were owned by the Canton of Berne at $120 per share ($100 par), payable in 3 percent bonds quoted at 90. Further purchases were made so that by the end of 1891 the Federation had 77.090 Jura-Simplon shares- In June, 1891, the Assembly authorized the Bundesrat to buy the Central rail- road at $200 per share ($100 par), payable in 3 percent bonds at par. This act was killed by the referendum of 1891. In 1892 the Assembly asked the Bundesrat to investigate the question of railway reform and repurchase. The result was the accounting law of 1896, which will be referred to later and which was intended to prepare the way for repurchase on reasonable terms in 1903, the next date at which compulsory purchase could be made in accordance with charter provisions. March 25, 1897, the final purchase bill was submitted to the Assembly, and was enacted October 15, 1897, and approved by the people February 20, 1898. The debates in the National Council in 1897 and in preceding years when the subject of State purchase was under consideration contain much instructive and valuable matter, but space forbids quotations in this summary statement. Lessons from Other Lands. 357 Besides all this, the Swiss people objected to stock specu- lation, and to the holding of Swiss railway stocks by foreign investors. Capitalists, not only in Switzerland but in Ger- many, Austria and France, speculated in Swiss securities, and the common people held, as stated to me by one of their leaders, that "financiers have no right to speculate with interests of a national character." The most vital railroad abuses we suffer from, however, were practically unknown in Switzerland. There was no fraudulent stock, no rebate system, no railroad lobby at the national capital. The best informed authorities in the univer- sities, and even Dr. Zemp, the Minister of Railways, never heard of a case of discrimination ; and political corruption had been very rare.* The main battle was really fought on the broad principle of the superior social, economic and political value of public ownership of public utilities as compared with private owner- (^) Prof. Borgeaud, one of the foremost authorities in Switzerland, was inclined to think when I first put the question that the railways had not been guilty of bribing legislators or exerting other corrupt influence on legislation through lobbies or otherwise, a fact which is due, it is said, to the existence of the referendum, which makes it practically useless to spend money for corruption since a moderate percentage of the people may demand a vote on the franchise or other measure and give the voters a chance to turn it down at the polls in spite of boodle legislation. Afterward, however, the professor called my attention to one case, "the only one he knew of," where the vote of the Canton of Vaud was necessary to the fusion of the Jura Berne and the Swiss Occidentale under the Simplon Company. The Canton owned a lot of the railway shares and nothing could be done without its vote. Vesser, a man of great political influence, was offered an option on a block of stock if he would carry the measure. The offer was worth about 30,000 francs to him. He took it and carried the bill, which apparently was not against the public interest, anyway. The bribe became known, and within three days Vesser had to resign his office, a result "brought about by the moral pressure of his friends and the public and by the bombardment of the press, the papers of his own party joining in the attack." The Government from early years had exerted a strong control over the rail- ways. Under the law of July 28, 1852, charters were granted by the Cantons, but must he approved by the Federal Assembly. The railways must carry the mail, including the parcels post, free of charge, also the "railway post officers" and postal clerks must be transported free. Soldiers and accoutrements of war must be taken at one-half the lowest regular rates. Special regulation was left to the Cantons or States. , In 1872 the Bundesrat submitted a new law with a report characterizmg as _ a specially great evil the inability of the individual Cantons to assert their authority against the greater railway companies," which had resulted in difficulties over the establishment of new lines or their transfer, the regulation of rates and time tables, and "the arbitrary action of the companies in cases of liability." The railway law of December 23, 1872, subjected rates to the complete control of the Federal Government, and opened to Federal inspection all acts and contracts relating thereto. A time limit was placed on the corporate life granted in the charters, and franchise rights were made transferable only with Federal consent. Railways were required to submit a detailed and accurate account of the expense of construction. The Government reserved the right to order the establishment of stations, double tracks and other facilities. The provisions as to free carriage of the mails were re-enacted. An annual franchise tax in proportion to net profits was provided for, and many other important points were covered. These and other laws that will be referred to, together with the repurchase provisions of the charters, held the railways pretty well in check. 358 The Railroad Problem. ship even when honest and efficient. From the "Message of the National Council to the Federal Assembly Concerning the Purchase of the Principal Lines of Swiss Railways" (March 25, 1897), and from conversations with the heads of Govern- ment departments, including Dr. Zemp, the Minister of Rail- ways, and Emile Frey, ex-President of the Ref)ublic and head of the International Bureau of Telegraphs and Telephones, and a large number of business and professional men in Geneva, Berne, Basle, and Lucerne, I condense the following statement of the main reasons that led to the nationalization of the railroads : 1. "The railways should be managed for the people, not for the profit of private owners." This point in varying form was emphasized over and over again as the fundamental argument and the basis of the movement. 2. "The rates would be lower." 3. "The service would be better. The Government would be more occupied with the interests of the public than the company's." 4. "Considerable economies will be effected by the consolidation of the roads under public management." 5. "Unity of the system is essential to the best results, and the united system must not be subject to speculative management." 6. "The private operation of railways puts too much power in the hands of the managers." 7. "The Nation would be better able to open new lines where they are needed. The companies do not develop the out-districts. They have refused to build new railways to villages where they think the busi- ness may not pay, altho there is great need for the roads." 8. "In their pursuit of dividends the companies have sometimes even neglected proper repairs and precautions for safety, so that bad acci- dents have resulted." 9. "The Government will be more liberal with employees than the companies, as is shown by its treatment of the employees of the Gov- ernment post and telegraph. It will adjust differences with employees in a better spirit, and we shall not have strikes of railway employees blocking our traffic." 10. "We do not want our railways owned by speculators, and espe- cially we do not want our railway shares owned by foreign capitalists." 11. "The capital of the railways should be gradually extinguished instead of being piled up, as the companies are doing. Provision has been made in Germany and Belgium for the amortization of the capital about the middle of the twentieth century, and the French railways are to come to the State free of debt about that time. We also must extinguish the capital charges on our railways, so that rates may be reduced as nearly as possible to the cost of operation." Lessons from Other Lands. 359 12. "National ownership of the railways will tend also to a closer national unity. This is important, for by reason of differences of race, etc., the union of interests among our States is none too strong." 13. "The success of the German roads affords a strong example of the value of State ownership."" "We are all convinced," said one of the foremost men in Switzerland, "that State management of railways has been a good thing, for Germany." ' The Opposition was very strong, but it did not spend its strength wholly in argument, by any means.' Tremendous pressure was brought to bear wherever possible to prevent men from signing the petition for the referendum. It was even charged that foreign money was used to defeat both the petition and the affirmative vote at the polls, and that paid agents were employed to propagate the opposition. In some States or Cantons even the influence of the Government was thrown against the measure.* The railway referendum petition was signed in a short time by 85,000 voters, 55,000 more than were necessary, or nearly three times the needful number. Some of the opponents of the measure were men of the highest char- acter. Numa Droz, for example, who had been three times President of the Repubic, and Prof. Borgeaud, of Geneva, already referred to. I cannot state the arguments relied on by this class of men better than by presenting the summary of them given me by Professor Borgeaud. "I voted against the bill," said the Professor, "first, because I don't (*) The purchase act provided that the net earnings of the Federal railways, or income above the cost of operation, shall never be used to meet other expenses of the State, but shall be used first for interest and amortization of capital; 20 percent of the remainder to go to a railway reserve fund till it amounts to 50,000,000 francs, and the other 80 percent to be a margin for the reduction of rates, improve- ment of service, etc. These provisions are intended to make it impossible to operate the railways for fiscal purposes. The plan is to clear off the capital in 60 years, and the law provides for the amortization of the railway debt in that time. This feature of the law, together with the provisions (described later) for the organiza- tion of the railway administration in such a way as to make it practically inde- pendent of political influence, won many of the more conservative people to the ' support of the measure. (") Altho the nationalization of railways in Prussia was most frequently^ referred to, the movement in other countries was not without its effect in Switzerland. Belgium after long trial of both public and private roads had adopted in 1870 the policy of State railways, and had made a decided success of it. Austria, which at one time sold its roads under the stress of financial need for military necessities, had rturned to State ownership, and by the law of December 14, 1877, inaugurated a new epoch of State railways. States bordering Switzerland on the north — Bavaria, Wurtemburg, Baden — and other German States had successfully operated their rail- ways for many years. All these things had their influence on Swiss thought. (') In fact the chosen representatives of the railroads, it is said, waived every opportunity for public discussion all through the campaign. * The situation was well put by a public officer in one of these Cantons, who said when asked to sign the petition in 1897 (translating his answer quite literally) : "I know enough how I shall vote, but I cannot give my signature. I would be revoked. The order has been given that it must not be signed. ' This sort of thmg, however, roused indignant protest, and many signed the demand for the referendum who were not for the measure but desired to see fair play, and to resent any interference with the right secured to every citizen by the Constitution to sign petitions for the referendum. 360 The Railways, the Trusts, and the People. want to increase the power of the Central Government so much ; second, because of the great expense and the large debt it would entail upon the State; third, because I doubt whether the management would be any better than that of the companies." "Were you also afraid that with so many employees, political influ- ence might enter into the employment of the men?" "Yes, that is a possibility." "Is there anything of that sort in the Post Office or Government telegraphs or other Government work now?" "No, not at all," replied the Professor. "There isn't any such thing now, but there might be." * Other members of the opposition said they were not so much afraid of centralization as of the big debt and of putting the railways under political control. Some of them would have preferred the consolida- tion of the railway companies under strict government regulation. The Farmers' Alliance w^as for the purchase, and the trade unions, including the powerful union of the railway employees, were for it." Several of the most prominent labor leaders of the country told me that fully three-fourths of the workingmen voted for the law. Commercial and business interests were largely for it, also, and the President of the Swiss Union of Commerce and Industry wrote a strong pamphlet in favor of it. The main influence against it was racial. The French-Swiss constitute about one-third of the population and the German-Swiss two-thirds. Increase in the power of the central Government means an increase of German preponderance and awakens French opposition. The French also are naturally more individualistic and less inclined toward public enterprise than the Germans. In some of the smaller Cantons the objection to centralization was very strong even (») "Has this experience with the popular vote on the railway question made you lose faith in the referendum?" I asked the learned professor. "Not in the least," he replied. "The decision this time was against my view. Another time the vote may go my way. But anyway I believe in the referendum-. I believe in Government by the people. These great questions of public policy should be decided by the people. I should not like to have them decided by a few men in the legislature, without appeal, as you do in America." The "boss" was one of the American institutions I was not able to find in Switzerland. "You do not seem to have political bosses over here," I said in con- versation with the head of one of the most powerful business organizations in the country. "No," he replied, "it is quite impossible. You will not have them in America either after you get the referendum and a few more of our ideas in government." (•) The "Comite Central de I'Union Swisse des Arts et Metiers" issued a cir- cular stating its "firm persuasion that the roads will be administered before all in the general interests of commerce and industry, that the law altho not wholly satis- factory will carry a quantity of amelioration, facilitate traffic in general, and bring a reduction of rates which will benefit the working classes as well as all other classes of the population," and declaring that it had "decided unanimously to ask the societies to work to the measure of their power in favor of the adoption of the purchase law." Lessons from Other Lands, 361 among the Germans because they feared it would increase the relative importance of the big Cantons, Berne and Zurich. Party politics was practically eliminated from the discus- sion. The Liberal Party has been at the head of the Govern- ment since 1848; but in 1891, when Federal Councillor and Minister of Railways Welti resigned on the defeat of the Central Railroad Repurchase Act, Dr. Zemp, the leader of the Conservative minority, entered the Bundesrat, and Zemp drew up the present nationalization act and supported it with all his force ; so it was easy for Conservatives to receive the act with- out prejudice and join the Liberals in voting for it. In the big discussion that filled the country to the brim, one of the winning strokes was the posting in the inns and public places all over the country the ringing words : ""the SWISS RAILWAYS :?0R THE SWISS PEOPLE."" This became the motto of the movement with the common people and had much to do with the big vote of more than 2 to I in favor of the measure. In anticipation of the possibility of national purchase, the Government had passed "accounting laws" in 1883 and 1896 subjecting the railway companies' accounts to rigid regulation and inspection, so that the books would show the real costs of construction and the real net profits justi- fied by the earnings, instead of possible fictitious values." C^") The necessity of this was realized in 1883 when the Government was con- sidering the advisability of giving notice of repurchase to a number of railways and it was discovered that their capital was estimated above the real value, and that dividends for the preceding 10 years were larger than the recipts justified. The law of 18B3 provided that only the actual cost of original construction and real extension or improvement should be put down in the account of assets, and not the cost of maintenance or replacement. These must be met out of annual revenue and "all sums which have been incorrectly entered in the construction account and all items removable from the asset balance are to be replaced from the annual surplus revenues by means of a sinking fund plan approved by the Bundesrat." In case the company refused to make the changes requested by the Bundesrat the payment of dividends was to be deferred till the matter was settled by the Supreme Court. Among the items removable from the asset balance were the costs of incorporation, organization and administration, losses sustained in calling in stocks and bonds quoted at a premium, and expenses involved in rebuild- ing and changing tracks, etc., insofar as no real increase in the value of the plant was secured by these outlays. The final determinations of the arqounts to be transferred from the construction accounts of the 5 big railways was 112,000,000 of francs, and the railroads had to pay off that sum out of earnings. This large saving to the public through regulation of railway accounts did not prevent, but rather encouraged further ^ examination and regulation. The "net profit" question was not sufficiently provided for. The law of 1896 attacked this problem. It provided that all railway accounts should be submitted for approval to the Bundesrat with special vouchers relating to net profits and capital, and gave the Bundesrat access to the books of the companies. The companies were required to establish a renewal fund which should at all times correspond to the full amount of depreciation on track, rolling stock and other property, and decision as to the amount to be paid into this fund each year rested with the Bundesrat subject to 362 The Railroad Problem. Under the provisions adopted by Government resolution in 1852 and substantially incorporated in the railway charters of that and subsequent years, the Federation might take the railways at stated times (the 30th, 4Sth, 60th, etc., years of the franchise) on giving three years' notice, and paying twenty-five times the average net profits for the ten years preced- ing the announcement of purchase, or the construction value, whichever rule produced the larger sum in any case, deduction being made for any sum necessary to bring the road up to standard condition." The con- struction cost, less depreciation, was estimated by the Government at $1731,000,000, and the indemnity, on the net profit basis, was placed at $174,838,000, but the actual indemnity to be paid was calculated at $192,835,000, because of the requirement that the State should pay each road the maximum resulting from either method of calculation.'^ The appeal to the Federal Court. No company could pay dividends till its accounts were approved: These reasonable and far-sighted laws saved the Commonwealth millions of francs by eliminating much surplusage from the accounts on which the purchase price had to be determined. (^_^) The road must be transferred *'in a thoroughly satisfactory condition," and if it should not meet this requirement whatever sum might be needed to put it in satisfactory shape must be deducted from the indemnity. The provision in a recent charter is as follows: "Should the railway property be in imperfect condi- tion and the reserve fund not sufficient to enable the State to repair such defective portions, a sum of money shall be deducted from the purchase price equal to such deficiency." In no case was the indemnity to be less than the sum found by subtracting the renewal and reserve funds from the certified investment or first cost ("le capital de premier etablissement" was the phrase in case of the Northeast, the Central and the Gothard; "les frais de premier etablissement" in other cases). If there were depreciation beyond what could be covered by the renewal and reserve funds a further sum would have to be deducted in order to cover the expense of putting the road in satisfactory condition. Thus the actual physical value or first cost of construction of the original line, extensions, etc., less depreciation, could be ascer- tained, and the Government was in no case to pay less than that amount, no matter how feeble the profit account of the road might be. (^^) The difference in the two methods of calculation will be made clear by an example or two. The Jura-Simplon's value on the basis of average net profit for 10 years was $50,910,700, and the construction cost was $62,112,000; so that the latter was the basis of settlement. The Government claimed a deduction of $4,480,000 for depreciation, placing the indemnity at $57,632,000. For the Central, on the other hand, the profit value was $38,199,000, and the construction cost $32,911,800; so that the profit value was the basis of settlement. The Government claimed $2,727,200 deduction for depreciation, calculating the indemnity at $35,471,800. The profit value was estimated on the basis of average net profits for the 10 years preceding notice of purchase, or 1888 to 1897 inclusive. The construction value was estimated clear up to the time of transfer. This future item and the question of depreciation introduced elements involving more or less uncertainty. The total value for the five railway systems, at 25 times the average net profit for 10 years, was $189,735,000, and the construction cost down to May i, 1903 (and May I, 1909, for the St. Gothard), was estimated at $197,911,000. The deprecia- tion claims amounted to $14,897,000, the deduction of which would give a total indemnity of $174,838,000 on the first plan, and $173,014,000 on the second, if it had not been necessary to adopt the maximum in the case of each road as shown m the following table. Calculations for purchase of Swiss roads in thousands of dollars: Estimated Value on construction Deductions net profit cost to date claimed for Resulting ^base. of transfer, depreciation, indemnity. Jura-Simplon $50,910 $62,112 $4,481 $57,631 Northeast 45,97i 52,775 3,888 48,887 Central 38,199 32,911 2,728 35,471 Union 17,996 17,535 1,524 16,372 Gothard 36,659 32.578 2,175 34,474 $189,735 $197,911 $14,896 $192,835 Lessons from Other Lands. 363 Government appropriated $200,000,000 in June, 1S99, for the acquisition of the roads. An agreement was reached with the Central, November S, 1900;" with the Northeast, June i, igci ; with the Union, November 22, 1901 ; and with the Jura-Simplon, May 5, 1903. The title to the first two railways vested in the Federation, January i, 1901 (the agreement being retrospective in case of the Northeast). The former managers and employees were continued in place, and the roads were operated by the companies' staff on behalf of the State until January i, 1902. Even when the State took the direct control as little change as possible was made in the staff or the ranks of employees. The Union was trans- ferred January i, 1902, and since then the Republic has operated directly the three systems: Central, Union, and Northeast. January I, 1903, the Jura-Simplon passed into the possession of the State, and the four railway systems were co-ordinated into one, including nearly the whole of the primary railways in one Government system under direct management of the Republic." The Gothard is not to be taken over until 1909. Notice of purchase was given the road in 1904, and negotiations were opened with the subsidizing countries — Germany and Italy — to secure an agreement with them. During the period of negotiation conditions changed considerably, making corrections necessary in the estimates of the indemnities. The ('^) Earlier in the proceedings the Central had been quite disputatious and the case had gone into court. As he handed me a copy of the decision of the Federal Supreme Court in favor of the Government the Minister of Railways said: "The Government claimed that it had a right to buy the road in good condition for the capital actually put into the road or for 25 times the average profits for the 10 years preceding the notice of intention to purchase, whichever might be the highest. The railway wanted a different definition of capitcil. The railway conten- tion was that the stock should go into the capital account, tho millions of it had been sold below par and the full face value had not been put into the road. So when a line was rebuilt they wanted to add the cost of the new road to the cost of the old road to get the capital, regardless of the fact that a large part of such a total represented maintenance and repjacement which should be met by a renewal fund accumulated out of earnings and not charged up to first cost or actual existing investment or present construction value. The Government said no, and the court sustained the Government." Under the effective Federal regulation and inspection of accounts the sum total of the stocks and bonds of the five companies was less than their cost, but this was not the case with the Central, whose stocks and bonds amounted to 26 millions (or nearly 20 percent) more than the construction account, January i, 1897, and this construction account was itself regarded as too high. The Central fell back on the net profit base, and received a liberal compensation, as its profits had been good. The Government assumed its $27,000,000 of debt and paid $15,000,000 in 4 percent bonds for its 100,000 shares — $150 a share (par value $100). This gave the company a compensation which at 4 percent would yield the same income (6 percent on the face of the shares) that had been received by the stockholders on the average for the 10 years preceding 1898. On the proposition of 189 1 the Central shareholders would have received $200 a share instead of the $150 they did receive in 1901. . The stockholders of the Northeast got 102, or a shade above par, for their shares, and the other roads got a little less than par in 3}^ percent bonds. The Government dealt liberally with all the companies; did not insist on the full deductions it thought it had a right to, preferring to come to an_ amicable agreement rather than enforce at law the full measure or strict letter of its rights. Moreover the nation got possession of the roads at an earlier date than would have been possible without an agreement, owing to the time limits fixed for purchase in the charters. (") The Government operated 1,475 kilometers in 1902, and 2,432 kilometers in 1903, after the addition of the Jura-Simplon and its annexed lines. This in- cluded all the "primary" or principal railway systems except the Gothard, with 272 kilometers. The "secondary" or local railways, or small branch feeder lines, aggregating 1,047 kilometers, were not incorporated in the State system. 364 The Railways, the Trusts, and the People. construction cost had to be calculated down to 1903, and it was to be expected that the estimates of 1897 would need modification, as in fact the Government itself predicted in its message containing the estimates. The change was specially great in the case of the Jura-Simplon, which during this time spent some 20,000,000 francs (including the subsidies from Italy, etc.) in tunnehng the Simplon. The amount of depreciation was also an open question. The Central company especially disputed the Federal estimates. The total indemnities actually paid for the four railways now in the Government possession was $186,075,000, about 28 millions more than the lowest preliminary estimate, and $13,200,000 above the preliminary estimates excluding the question of depreciation, most of the difference being due to change of condition by expenditure for new construction, the Jura-Simplon covering the bulk of it.'' For three years now, beginning with 1903, nearly all the principal railways have been operated by the Government, and the results appear to be highly satisfactory to the Swiss people in general, tho not satisfactory to some French, English, and American visitors who regard the matter from the corporation point of view and do not see anything much in a railway sys- tem but the dividends. The expenditures required to put the lines in good condition and make the needed extensions have been large. When the Government took the roads most of them were single tracked; it is double tracking all the important lines. Road beds, tracks and stations have been re- built. New cars and locomotives have been put in the place of a lot of old rolling stock which the new management sent to the junk heap. Train service has been increased, about 10 percent more trains being run than under company management. Wages have been decidedly raised ;" and rates have been reduced, the Government taking the lowest (^5) The following table shows the facts for each of the four companies: Indemnities Actually Paid. Revised calculations based on the cost of new construction in years between the original estimates and the transfer of possession, and on the agreements as to depreciation, etc., in thousands of dollars; Debts Payments assumed by in bonds Total the Government. or cash. indemnities. Jura-Simplon $51,230 $20,820 $72,050 Northeast 38,926 16,400 5S.326 Central 27,019 15,000 42,019 tJnion 8,680 8,000 16,680 . . $125,855 $60,220 $186,075 These mdemnities do not appear excessive. Take the Jura-Simplon, for example, the road in respect to which far the greatest increase over the preliminary estimate took place. The Government report for 1902 shows that in December of that year the actual cost of the Jura-Simplon had been $73,260,000, or $1,210,000 more than the mdemnity actually paid. The bonds amounted to $51,230,000 and were assumed by the Government as they stood. In addition the Government paid $20,820,000 in zVz percent bonds. The stock of the company, December, 1902, was $21,863,000, so that the shareholders got a little less than par. Q^) The companies iixed maximum and minimum wages and raised a man 50 francs a year till he got to the maximum in his line. The Government decided to Lessons from Other Lands. 365 rate in force on any railroad and making that the standard rate for all the roads. Interest on the bonds has been provided and more than $330,000 has been set aside each year for the sinking fund that is to extinguish the capital in less than sixty years. Altho considerable economies were effected in some directions, the large expenses above indicated have prevented the balance sheet from having a pleasing appearance to one who has a craving for immediate profits " after two or three years more of necessary improvements and extensions the roads may make a favorable showing to the commercial eye as well as to the human eye. The service on the Swiss railways will not compare favorably with ours. Neither will their stores and factories for the most part, but the Government railway service is better than the company service was in Switzerland.^ The third class cars,^^ in which the bulk of the people ride, are cleaner and the speed better than in many parts of France, and they are heated from the engine instead of using the hot-water bottles so common in third class French and English cars. Local conditions account for the fact that rates are high in Switz- erland, not so high as they were under the company regime, but still higher than those in use in most other countries. The average ton-mile rate on goods traffic was 2.84 cents under the companies just before the transfer, ^nd 2.64 cents in 1903, the first year raise the minimuin for permanent employment from 1,045 francs to 1,200 francs; to lift the maxima also and order a raise of 300 francs every third year till the maximum is reached — an average of 100 francs a year instead of 50 under the companies* regime. (") While discussing State railways a few months ago (in igo?), with Acworth, who is opposed to that system, the conversation turned to Switzerland, and Acworth said: "Switzerland has made a mess of it." "What are your reasons for that conclusion?" I asked. "She paid more for the roads than she expected to. Then she lowered rates, raised wages, shortened hours, extended the lines and increased the staff, and spent large amounts on improvements. The consequence is that the financial showing is not as good as that made by the companies." This seemed to me a correct statement of the facts, but considering the reasons for the less favorable balance sheet, which the famous Englishman stated so clearly and concisely, I am not able to follow him to his conclusion that "Switzerland has made a mess of it." If the sacrifice of profit for a few years in order to lower rates; extend lines, improve the service and elevate labor conditions, is "making a mess of it," there are several people in America who would like to have a similar mess made in our railroad field. Iv- Paul Henry, writing in the Annates des Sciences Politiques, Paris, 1905, also takes this view, basing his criticism as Acworth did, on the present financial aspects, and failing to recognize either the higher social and industrial values obtained by the outlay for improvements, high wages, lower rates and cancellation of railway capital, and the excellent returns even on the financial plane that these present expenditures may bring in the future. (^^) During the transition period there were delays and difficulties, but since the new system got thoroughly under way the service has been a great improvement on that rendered by the companies. (^^) The Swiss cars are small. So is the country. I shall not follow the lead of our friend from Chicago, Mr. Hugo Meyer, by inferring a causal relation from coexistence, but I may call attention to the. fact that in a small, mountainous country with a poor soil, thinly populated and altogether unfitted to the develop- ment of traffic, there is something to be said in favor of having small cars for small consignments of goods or passengers instead of hauling over the mountains semi-oceasionally one or more big cars to a train with a few pounds of freight or one or two passengers in each car. At any rate the cars are no smaller than they were under the companies' regime, but larger, for the policy of the Government is in the direction of introducing cars of American type. 366 The Railroad Problem. of complete public management. These rates are high, but it must be remembered that they include the express; that Switzerland is a nest of mountains; and that the soil is poor, the resources small and the traffic light. Remember, too, that there are no rebates or secret rates in Switzerland to cut down the average rate. The average passenger rate was i.S4 cents a mile under company management and 1.35 cents under public management. The third class rates, on which about nine-tenths of the people ride, average only a shade over a cent a mile (1.12 cents). Commutation tickets are sold for i/s oi z cent a mile third class, and tickets for workingmen and school children are 1-3 of a cent a mile (i cent a mile second class and 154 cents if you want to go first class, which is entirely unnecessary, as the other cars are very comfortable). Circular tickets are sold at low rates for touring the country. Monthly tickets can be had allow- ing you to travel without limit on any of the railways of Switzerland at $11 third class, $15 second and $22 first. For a six months' ticket you pay $45, $59 or $104, according to class. If you used your ticket pretty steadily you could, on day trips alone, travel for a tenth of a cent a mile on the monthly, and less than that on the semi-annual. The principles followed in making rates are the same as those on which the best company systems base their rates except in one respect— the rates are made for public service, not for private profit. Distance and cost form the foundation of the rate system, upon which such special adaptations are erected as may be required to meet the needs of commerce, agriculture and industry, and conform to the value, bulk and other conditions of the traffic, aid education and the working classes, and facilitate social and business intercourse. It was regarded as of prime importance to make the admin- istration of the national railways as independent as possible of the other parts of the Federal administration, and protect it from every political influence. For this purpose the railway management was placed in a general directory of 5 or 7 mem- bers, and five circuit or division directories of 3 members each, and along with these executive bodies the law established de- liberative councils representing general public and commercial interests on the principle of the Prussian railway councils, tho on a somewhat dififerent plan, the councils having much more than advisory powers in the management of the rail- ways.''" In fact the "administrative council" is really a national C^") !Each of the circuit councils has 15 to 20 members, 4 of them elected by the Bundesrat and 11 to 16 by the Cantons. They render opinions on all questions relating to railway affairs, especially rates and time tables, on request of any agricultural, industrial, commercial or labor organization, or the Federal authorities, a cantonal government, the administrative council, or one of their own members. They also approve the accounts and reports of the circuit directory and decide upon all credits not provided for in the budget. The administrative council has 55 members, 25 of them elected by the Bundes- rat, 25 by the Cantons and 5 by the circuit railway councils. Of those elected by Lessons from Other Lands. 367 board of directors for the railways elected by the States, the national executive committee or cabinet, and the circuit councils represent agriculture, trade, and industry and the gen- eral public interest. This has worked excellently. The rail- way administration is absolutely free from the taint of party politics, and the roads are operated on sound economic prin- ciples for the benefit of the whole community. The people of Switzerland have the railways in their own hands in a triple way. i. Through the operation of the roads by their own agents and managers. 2. Through the super- visory, advisory and regulative powers of the councils repre- senting national and State interests, agriculture, commerce and manufactures. 3. Through the general supervision and legis- lative control of the regular Government elected by ^11 the people. And back of it all is the splendid power afforded by the initiative and referendum which permits any question that may arise to be called before the people themselves for direct and final decision at the polls. If the railways are not just what the people want them to be, they will have no one to blame but themselves. The great lessons of Swiss railway history''* are that there may be ample reason for the nationalization of railways even where there is no stock watering or discrimination, or rail- road lobby ; that the extension to national affairs of the refer- endum principle which constitutes the core of our famous New England town meeting system makes it very easy to nation- alize the railways or accomplish any other purpose the people the Bundesrat not more than 9 shall be members of the National Assembly, and the law requires that agriculture, trade and industry shall be properly represented. The administrative council has supervision of the whole railway administration. It fixes the principles on which rates and classifications shall be made, determines the organization of the railway service, establishes the general conditions of ai)point- ment of the personnel, confirms the appointments of the chiefs of divisions in the general and circuit directories, fixes the compensation of railway officers, draws up rules for the pension and benefit funds, etc., etc. The Federal Assembly retains general legislative power over the railways. An excellent account (much fuller than can be given here) of the provisions of law relating to Swiss railway administration will be found in a paper by Hans Dietler of Lucerne, No. 250 of the Publications of the Amer. Acad, of Polit. and Soc. Science. See also the statement by B. H. Meyer in vol. IX, Ind. Com., 958-961. , . . , (") Switzerland is a small country, but the value of a country s institutions cannot be measured in square miles. Athens is a mere dot on the map, but her thought was the cradle of civilization and her civic institutions the foundation of modern liberty. Rome, a village on the Tiber, became the law-giver of the natioiis. And here is Boston also to protest against the mere test of size. Some things do depend on area, but the broad principles of civic and social action are not dependent on the foot rule, and it is for the light that it throws on these principles that the history of Swiss railways is important. 368 The Railways, the Trusts, and the People. may desire, even if the Government of the day were not favor- able to it ; and that it is entirely practicable to put the adminis- tration of the railways above party politics and secure their efficient management as cooperative business enterprises. ITALY. Italy transferred her railways from private to public man- agement July I, 1905. When I went through the country some time before the transfer I found it boiling and bubbling from Vesuvius to the Alps with the railway issue, complaints against the companies, arguments for State operation and arguments against it. The statements made to me by leading men in Rome, Genoa, Milan, Naples, Florence and Venice would fill a good-sized volume. I can give only a hint of the course of events and movement of thought that led to the adoption of State operation a few months ago. In the earlier years of railway development Italy tried various plans. The State built some roads and bought others. It tried State manage- ment, but on a small scale and under bad conditions. Down to the eighties most of the roads were owned and operated by private com- panies. Then came a period of State ownership with private operation under contracts reserving to the Government more than a quarter of the gross receipts and providing for the annual payment of specified amounts per mile to reserve funds for renewal of track and rolling stock.' From 1859 to 1870 the principal railways of Italy consolidated into four main systems — the Upper Italian, the Roman, the Eastern, and the Sicilian. The latter becoming bankrupt, the Government had to choose between giving up the development of that part of the country or taking the railroads. In 1870 it chose the latter alternative, adopting State ownership of these lines with operation by an agent company receiving a percentage of gross receipts, the State paying all expenses and realiz- ing a handsome deficit each year. In the seventies the Government entered into contracts for the purchase of the Roman, Eastern, and Upper Itahan systems,^ with the idea of State operation, but financial difficulties prevented the completion of the purchases until 1882. In 1876 the Parliamentary idea turned toward private operation either by companies paid by the Government to do the work, the Government paying expenses and taking the risk and the profit (if there should happen to be one), or by companies paying the State for the use of the lines and taking what might be left for themselves, or by companies (1) These contracts are well described by Hadley, and the reader is referred to ^'Railroad Transportation," pp. 233-4, for details. CT' Contract for the Roman system, 1873; Eastern, 1874-6; Upper Italian, 1875. Lessons from Other Lands. 369 operating under some sort o£ expense-dividing, sliding-scale, profit- sharing arrangement. In 1878 the whole question was referred to a commission which re- ported in 1881 in favor of leasing the roads on a sliding-scale division of gross receipts between the Government and the companies. It opposed State management for Italy for several reasons: (i) The necessary funds were not available. The Government had ,not been able to complete its purchases. The Eastern road was still unpaid for. Some 3,000 miles of new road in addition to the 5,000 miles then open were required and had been voted in 1879, but the work was languishing for lack of funds. (2) Political conditions (in Italy) were not adapted to State management. Politics would corrupt the railways; changes in rates would be made to influence elections. Political difficulties had been already experienced with the State roads in Italy.^ (3) State man- agement appears to be more costly than private, the percentage of expenses to receipts on the State railways of Belgium, Austria, etc., being higher than on the private systems.* The result was that contracts were made with two operating com- panies to take effect July i, 1885. The companies bought the rolling stock owned by the State, and agreed to pay for ordinary repairs. For extraordinary repairs and renewals reserve funds were established.'* (^) It is charged on high authority that the commission was packed with railway men and agents of those who desired to lease and operate the roads, instead of having the Government take charge of them. (See Quarterly Journal of Hconomics, July, 1887, article by Simon Sterne, a prominent member of the New York bar, who went to Italy as the confidential agent of President Cleveland, and while there received trustworthy inside information about the commission). The railway promoters wanted the lease, and the Government desired it also in order to get funds for other purposes, so the Government and the railway men united to secure a commission that would render a report justifying the lease. (*) Strange as it may seem, the commission did not note the fact that a high ratio of expenses to receipts may be due to low rates and not to high cost of operation. Under the same management if the rates were high the expenses might be only 50 percent of receipts, while if the rates were cut to the level of cost the expenses would be 100 percent of receipts. The commission did not take up_ the question of rates on the Belgium and other State systems as compared with private railway rates. It is an interesting fact that this report of the Italian commission has been ranked as the strongest document in existence against the doctrine of public ownership and operation of railroads. Even President Hadley in his "Railroad Transportation," founds his argument against State ownership mainly on the Italian report, yet the reasons given by the commission are partly false, invalid on their face, partly inapplicable to other countries where public finance is not so weak and political conditions not so bad. Moreover, the commission of 1878 lacked nearly the whole of the important facts and experiences that have_ since demonstrated the superiority of public railways. Even in Germany, the principal State, Prussia, tho she nationalized her railways in 1879 while the commission was at work, had not developed her system when the commission's investigation ceased. Finally there is good reason to believe that the commission was appointed on purpose to make the decision it did make, the members being selected with reference to the conclusion desired by the appointing power. It is quite likely that no other conclusion was practicable in view of the conditions of Italian finances. I waded through the whole of this giant report before I went to Italy, and in my testimony before the United States Industrial Commission (vol. IX, 1901, pp. 180, 181) pointed out some of its fallacies and the weakness of President Had- ley's argument based upon it. Now Italy has refuted the arguments of the com- mission even as applied to her own case by repudiating the system of leasing proposed by the commission and tried for 13 years and adopting the system of direct State operation. (°) The contracts required payments each year to reserve funds: (i) $64 per mile for extraordinary repairs; (2) $48 a mile single track, and $80 double track, for renewal of rails; (3) 1% percent of gross receipts for renewal of rolling stock. 370 The Railroad Problem. The State was to have about 28 percent of the gross receipts and the companies 63 percent or less if the receipts rose above a specified minimum." The contracts provided for low rates for agricultural prod- ucts and for workingmen and school children, and stipulated that the railways should carry the mails free of charge. The term of contract was sixty years, with the right of termination by either party at the end of twenty years (1905) or forty years (1925)- The arrangement did not work well, and it worked worse and worse as time went on. The companies would not interpret the contracts liberally in the public interest, but insisted on the letter, and evaded even that. They disputed every point, and tedious litigation seemed to be specially delightful to them.' The companies were hampered more or less by State control and contract conditions, so that they were not happy. And the State could not find a way to enforce its rights as it conceived them. So the system was not satisfactory to the Government, the people, or the com- panies. Statements from the Parliamentary debates and other Italian documents would be interesting, but I have space only for a few rep- resentative extracts from my conversations with railway managers, members of Parliament, heads of departments, including the Minister of Public Works, and leading business men, which will make the situa- tion more concrete than I could hope to do by statements taken from State documents. "The service is execrable. The cars are dirty, ill-ventilated and uncomfortable. The hot-water cans do not heat the cars satisfactorily. Many of the cars are worn out. The wheels are flat. The rolling stock is in bad shape. There are not enough trains, and those we have are very slow and almost always late." I can confirm these statements, especially in regard to the chronic slowness and impunctuality of the trains. It was a common thing for the trains from Milan and Genoa, for example, to be 2 or 3 hours late at Rome, and half a day was not (^) Placed at $22,000,000 for one company and $19,000,000 for the other. Each company was to have 56 percent of the next $10,000,000 of its gross receipts, and so percent of any excess gross receipts beyond that. Provision was made for a '^property increase" fund from receipts above the minimum, and 6 percent of any excess above the $10,000,000 addition must be applied to such reductions of rates as the Government might indicate. If either company were able to declare a dividend of more than y% percent, half of the excess must go to the Government. The receipts in later years ran far above the minima, and above the minima plus the 10 million addition. In 1904 with 9,960 miles of line the total receipts were over $65,000,000. The expenses in the later years ran over 78 percent of the receipts, which would make the commission of 1878 realize that private roads even with high rates may have a coefficient of expense higher than any they found for public roads with the handicap of low rates. (') It was the same way in Vienna where the city tried to establish public ownership of street railways with private operation under most carefully drawn contracts. The company took advantage of every technicality, and there was so much dispute and litigation as to the meaning of the agreement and the city's rights under it that the city abandoned private operation in disgust and established public management direct. Even in Toronto, which has what is probably the best contract in existence, it is found impossible to exert the control reserved in the agreement or get the company to abide by the spirit and substance of it, and the Mayor is convinced that the city must come to public operation as well as owner- ship. Neither the Austrian, English, French or Italian language seems to be strong enough to frame a contract that will hold a railway corporation down to reasonable observance of the public interest. Lessons from Other Lands. 371 regarded as surprising. The slowness, especially on the local trains, was something abnormal. The 15 miles from Naples to Vesuvius, for instance, took us over an hour by express train (it would have taken nearly 2 hours by ordinary train, we were told), and the train was late in starting besides. Coming back we were three-quarters of an hour behind time. Nothing was the matter. Time is not of the essence of the contract in Italy. "The loudest complaints," said a prominent member of Parliament, "relate to passenger traffic, but the mismanagement is really still greater in the freight service. The goods are roughly handled and often injured, and the delays and impunctuality of delivery make the traffic very exas- perating. The period for delivery is fixed by law, but the companies do not regard the law. The rates are very high, also. The railway question is the great question in Italy." The head of a Government department said: "We need greater facilities. In Genoa, for example, the railway facilities are wholly inadequate, altho that city is our principal port. We need also double tracking, new buildings and new rolling stock. The reserves and devel- opment funds are insufficient. The companies will not make the needful improvements ■ for fear the Government might reap most of the benefit, and the Government won't do it for fear the benefit would go too largely to the companies. The accounts of the companies are open to suspicion. They put cost of maintenance down to construction, so as to make the Government stand expenses they ought to bear. The conflict of interest runs through the whole service. The Government wants many trains. The companies want no trains that do not pay. The companies make good profits, largely on the new construction which they do from time to time under contract with the Government." To a railway manager with 40,000 men under him, who declared that "the companies themselves would not be willing to continue the present arrangement," and who showed a strong inclination to answer frankly all my questions, I described our rebate-secret-concession-discrimination system and asked: "Does an}4hing like that exist in Italy?" "Yes," he replied, "discriminations are made in favor of big shippers." "Can you get rebates from the German roads?" (I had asked this question many times before in my journeys and always got a negative reply.) "We can't get German rebates directly, but on through shipments to England over the German roads the English railways give rebates and manage to make the German roads pay their share by means of fictitious damage claims." The system was explained to me by business men in Italy who said the bargains were made with English traffic managers, who made out claims in legal form for damages in transit and wrote the German office that so much had been paid for damage to the goods, and as it was not known in what part of the journey the goods were injured the German system must stand its share. 372 The Railways, the Trusts, and the People. Free passes were given with great freedom to persons of influence. Sig. Luigi Luzzetti, ex-Minister of Finance, and one of the foremost thinkers of Italy, speaking of the difKculties of financing Government industry in that country, said : "As a citizen and philosopher I desire public operation of the railways, but as a financier I do not. There is a conflict of motives. Now I am no longer Minister of the Treasury, and as a citizen I wish State operation." "Cannot a profit be made as in Prussia?" "Perhaps, but the immediate effect would be to lower rates, raise wages, entail great expense for new track, cars, etc. There would be great pressure for new lines, and in Italy political pressure cannot be resisted. There would be a deficit." "Would not the general industrial and social benefits of railway extension and improvement more than balance the deficit?" "For the social and industrial results," replied the statesman, "it would be much the best; but Italian finance is not in a condition to stand the strain of the deficit that might come. For that reason it is politically best to renew the leases for lo years with some modifications, and strengthen the Government finance meantime, and have the roads come to the State at the end of lo years." "What is the sentiment of the people?" "If a vote of the people were taken to-morrow two-thirds of the citizens of Italy would vote for State management," he replied. "Why?" "Because the rates are too high, the service poor, and the roads are managed for the profit of the companies, not regarding the public in- terest." Maffeo Pantaleoni, member of Parliament, economist, editor, professor in the University of Rome, and one of the handsomest, keenest, finest men I have met in any country, said in the course of one of our talks : "The Minister of Public Works (Minister of Railways) has been till recently strongly against State management and in favor of renewing the lease with a better contract. But a few months ago he said: T begin to see some sense in the demand for State management. These companies insist on sticking to their contract by the letter regard- less of the pubKc welfare. The public interest requires a certain elasticity, or power of adaptation to conditions as they arise, that a contract cannot foresee and provide for.' "The cause of this outburst," continued Pantaleoni, "was a washout on the line from Rome to Naples, which is the string by which hangs all the commerce with the South. The pubhc necessity was to repair the break at once, work night and day, and it could have been fixed right up by putting a lot of men on the job; but the companies insisted on their contract; they didn't want to hire outside help and increase expense, and so took their time and held the commerce of the nation at bay to save a few dollars." The Minister himself, Count Guisso, subsequently told me that the contracts were not satisfactory to the Government nor the roads, and Lessons from Other Lands. 373 something would have to be done. A better contract could be drawn with a longer term, perhaps. Or the roads could be sold to the com- panies, reserving to the Government full rights of control over rates and service; or the State could take the roads and operate them directly. "The sentiment in favor of State management," said the Minister, "is increasing in force every year." Last year, the earliest date the Government had a right to take the roads, Italy adopted State management, paying the companies for the rolhng stock and other movables. Many of the railway employees did not desire the change because they did not wish to exchange the strike for arbitration in the settlement of labor disputes. The people as a whole were overwhelmingly for the transfer. The chief difficulty lies in the political conditions, which are worse in Italy than in any other place I have visited except perhaps Montana, or Philadelphia before the recent awakening. The royal element in the Government of Italy is still quite powerful. There is a strong tendency to militarism and to tax industry to death. The moment the plow goes into the land the taxes begin. Wages are very low, farm hands being employed for 15 and 20 cents a day, and their labor is not worth much more, probably. The head of a great railway shop (an Italian himself) told me it took 4 or 5 Italians to do as much work as one American. In some parts of the country the illiteracy is frightful — 89 percent of the people of Naples do not know how to read and write, I was told. In Milan, on the other hand, there is only 8 percent of illiteracy. With such conditions it is no wonder that the ballot has been tampered with at times, on a colossal scale, and that political con- ditions are very bad. It is true, however, as the advocates of State management declared, that "there is no political interference with the Government employees in the public post and telegraph departments; and the service is efficient and economical; and that the civil service rules are good and fairly well enforced throughout the Italian system, -SO that future railway employees will be selected according to fitness and tested by civil service examination, and therefore political influence in the employment department at least is likely to be less than it has heen under the company system." We have information from several high authorities as to the results of the transfer of the railways to State operation. Some of them are eminent Italian publicists and some are American and English authori- ties; one is a well-known American economist who has just traveled the whole length of Italy (May, 1906) ; another is a famous American rail- road president who has also just come through Italy; another is a Cook's tourist agent who has been familiar with the Italian railways for many years. These witnesses state that the immediate or substantially immediate effects of the change to public operation have been a decided improvement of the service, the running of trains much more nearly on time than under the system of chronic and extravagant delays that marked the company regime, the raising of wages somewhat, the better 374 The Railroad Problem. treatment of employes generally, and the relief of commercial interests and the public in general from the fear of railway strikes, which was a disturbing element under the company system. Recognizing the difficulties in the problem that confronts them, we wish our Italian friends every success in their effort to overcome them and make a success of State railways in Italy. AUSTRIA-HUNGARY. In Austria railways were not encouraged until 1838. Then the Government authorized railway construction, guaranteeing each railway a monopoly in its district for its charter term. The State also proceeded to build lines of its own on a large scale. The revolution of 1848 put the Government in financial straits, and it sold most of the State railways to help the Treasury out of its difficulties. After 1866 the growth of the private railways was very rapid, owing to speculative building. The usual collapse followed. "The railway speculation which ended in the crisis of 1873," says a high authority, "was per- haps more recklessly carried on in Austria than anywhere else in the world, and resulted in very great distress." In 1877 the Government returned to the State ownership policy, and by purchase and construction built up a consider- able system of public roads. In 1885 Austria had 2,000 miles and the companies 6,000; and Hungary had 2,000 miles of State railway and 3,000 miles of private road — a total of 4,000 miles of State roads and 9,000 miles of private. The state- ments of 1905 (for the year 1903) show 7,297 miles operated by the Government in Austria against 4,985 in the hands of companies, and 9,207 miles operated by the Government in Hungary against 1,861 miles operated by companies — 16,504 miles for the State and 6,846 for the companies. It has been the policy of the Government to reduce rates, especially passenger rates, in order to stimulate intercourse and also to scatter the people of the capitals into the suburbs. The zone system, which produced such a wonderful increase of traffic that it has become world-famous and well deserves its celebrity, was first introduced in Hungary in 1889, and attained its highest success there.^ (') The system went into operation in Austria in June, 1890. A thoughtful Englishman who traveled through the country a little later was so impressed with what he saw that he wrote a description of it for his English reaiders under the caption: "Shall we English ever have a State Railway?" Among other interesting Lessons from Other Lands. 375 Tickets are sold by zones, and are good for all stations within the same zone. The first zone runs from i to 15 miles, the next from 16 to 25 miles and so on, the steps in making the bigger zones being longer, and beyond 140 miles all sta- tions are included in the same zone. The rates are 10 cents third class on ordinary trains and 12 cents on express trains for each zone. If your journey takes you over 2 zones, as from a station in zone i to a station in zone 3, you pay 20 cents (or 24 cents express). If you cover 5 zones you pay 50 cents (or 60 cents express), and you can go any distance for $1.60 (or $1.92 express). For local traffic special rates are made, 4 cents to the next station from where you are in the same zone and 6 cents to the second station. For short distances the rate is about i cent a mile or less; for long distances it runs down to about 1/3 of a cent a mile. From Budapest to Kronstadt, for example, you go 457 miles for $1.60. If we had the same rate here you could go from New York to Chicago for $3 instead of $20, and from New York to Philadelphia for 32 cents instead of $2.50. We can- not expect so much reduction, of course, because costs are greater here, but that difiference does not require six to eight times higher rates. The zone rates, as compared with the previous rates in Hun- gary, caused a reduction in fares of 82 percent on the longest distances and 50 percent on the medium distances, 60 to 200 miles. The average reduction in the charges per passenger was about 50 percent on the whole traffic, and the stimulus to travel was so great that the business much more than doubled the first year, as is shown in the table : Passenger Passengers. Receipts. August, 1888, to July 31, 1889 5.684,84s $3,800,000 August, 1889, to July, 1890 13,456,712 4,620,000 The growth of traffic was so great that the receipts in- creased in spite of the reduction in rates, and I am told that things he said; **The people of Austria and Hungary are delighted with their sys- tem of State railways; they speak with enthusiasm of the facilities for travel which it allows them. They are not obliged to buy the tickets at the last moment before starting on a journey; they buy packets of them, and use them as they need them. . . . Who are the beneficent railway directors who have made travel so easy and so cheap? They are no other than the people of Austria themselves acting through their Government." 376 The Railways, the Trusts, and the People. the net receipts were also enlarged, the expenses of operation "by no means increasing in proportion to the volume of trafific. The simplification of the tariff was immense. I was aston- ished as I was taken through the interior of the ticket offices to see the small space required. The economy in printing is also very great. Tickets are sold like postage stamps at the post office, hotels, etc. In Austria also, the Minister of Railways told me, the zone system was an admirable success, but the rates were set too low at the start and some increase was necessary. The prin- cipal companies had also adopted the zone system under "soft pressure" from the Government.' In addition to the zone tariff there is a system of excursion tickets and also season tickets in books of 30 and 60 tickets each, at very low rates, amounting to about 1/3 to ^ of a cent a mile in many cases third class, and 1.2 cents first class — 600 miles of travel for example for $2.68 third class and ■$5.36 first class, 1,200 miles for $4.80 third class and $10 first class, etc. Large discounts are made on weekly tickets for workingmen. The zone idea is not applied as a complete system to freight traffic, but the principle of tapering rates, or lower mileage charges for long distances, is in use, and special rates are made as in Germany and Belgium ; and agriculture, education, etc., are encouraged by very low rates. The farmers can buy transportation stamps and bill their goods at home by a very •simple system. There are no free passes or rebates or unjust discrimina- tions on the State roads, and the Government control over the private railways is so strong and the inspection so thorough that there is little chance for favoritism in their management cither. The efficiency of the railway management does not appear to be interfered with by political influence. I was (}) Railway charters are granted for 90 years, during which the grantees are -protected against competitive construction of parallel lines, in return for which concession they undertake to huild whatever lines are needed for the devdopment •of the territory in which their railway lies. The State may purchase the road at any time after 30 years, and at the end of the franchise term the road reverts to the State without compensation. Maximum rates are fixed in the charter for both passengers and goods on the zone system idea. All rates, regular and special, are made under the supervision of the Government, and the State authorities have ■power to order reduction of rates whenever net profits exceed a certain amount. A debt limit is fixed, and provision is made in the charter for the amortisation of ■the capital. Pooling is legally permitted in Austria, the agreements being subject to the supervision of the State authorities. Lessons from Other Lands. 377 informed that birth was taken into account in making ap- pointments, but politics did not count. Premiums are given to engine drivers, etc., for economy in fuel, etc., and to offi- cers for getting locomotives out of repair shops quickly, so as to have them in service as continuously as possible. The most interesting thing about the State roads is the pur- pose the management keeps in view. The Austrian Minister of Railways, in answer to my question as to purpose, said that they did "not aim at profit, but at the best possible service at reasonable cost." The Hungarian Minister at the time the zone system was introduced with its great reductions in rates stated that the main reasons were "the economic and civilizing effects of such a reform." The Government desired "the re- moval of the disadvantages attending long distance travel be-, cause of its high cost, and the elimination of the element of distance so far as possible." * The Government aimed "to establish methods which would place the reduction within the reach of all and adapt them to the requirements of all classes of the entire population," and to adopt "a system that should contribute effectually to the development of traffic and com- pensate, indirectly, for the sacrifice which the large reductions in the tariff would involve." As it turned out, the anticipated financial sacrifice did not occur, but the fact that the motive was social, not financial, is none the less clear. The Government policy is to use the rail- ways as a means of civilization and unification. The civic and social benefits of such a policy can hardly be overestimated. HOLLAND. The first railways were built by private companies from 1840 to 1856. In i860 the State began to build. The Minister says: "Private enterprise having originally chosen for con- struction the most productive lines, which are only few in the Netherlands in consequence of the many good waterways, the State has been obliged to build the other lines in order to com- plete the railway net." Some of the private railways have been bought up by the State. According to the figures given (2) Yet we are told by Mr. Hugo Meyer and others that Government rate- making means a distance tariff. The fact is there is less respect paid to the dis- tance factor on the State roads of Europe than on our private roads, and more flexibility and adaptation also to the needs of labor, education, etc. 378 The Railroad Problem. me by the Minister of Commerce in 1905, the State owned 1,108 miles out of a total of 1,811. The State, tho building and buying lines in order to control them more perfectly, leased them to companies instead of oper- ating them directly, so that all the railways of Holland are under private management. The companies, whether owning or leasing, are legally obliged to transport without charge all the mails and the postal cars and clerks. The Government control over the private roads is strong. It fixes maximum rates, and the rates made by the companies must be approved by the Minister before they can go into efifect. This is the established practice in one form or another all over the Continent. Germany, France, Belgium, Holland, Denmark, Sweden, Norway, Russia, etc., deal with private railways in this way and have done so for many years. In answer to my questions the Minister stated that the com- panies do not give passes to legislators, nor exert any large influence in the halls of legislation, nor discriminate unfairly between persons and places. New State lines are decided upon by a vote of Parliament, taken on the proposal of the admin- istration. The Government consults with commercial inter- ests about railway matters, especially time-tables, which are sent to the Chambers of Commerce in leading cities to see if they have any objections or suggestions before the Minister approves them. The most interesting part of Holland's railway history re- lates to a couple of railroad strikes in 1903. In January of that year there was a sympathetic railway strike focusing at Amsterdam, because the railway companies would not refuse to carry shipments for certain transport and warehouse com- panies whose employees were on strike. The strike tied up traffic at Amsterdam for several days. The men won, securing complete reinstatement and virtual acknowledgment of their claim that railway unionists could not be compelled to deliver cars to warehouses that employed non-unionists. Exultant over this success the railway employees began to demand more wages from the companies and threatened a uni- versal strike. To meet the situation drastic bills were intro- duced in Parliament to make it illegal for railway employees Lessons from Other Lands. 379 to strike, and to establish a commission or board of appeal to adjudicate complaints of employees of the railways or of the Government. The latter bill passed the 2nd of April. On the 6th the great strike began. It was all the bigger because of the pending bill to penalize striking. The collapse of busi- ness was complete. Not a car moved. Troops were called out. April 7th the penalty act passed, 6 to i in the lower house, unanimously in the upper house. This killed the strike. Men began to return to work, and on April loth the strike was formally declared off. DENMARK. The first railways in Denmark were private roads constructed hy English builders, as was also the case in Norway and Sweden. The best locations were taken up by the companies. The Government built other lines where there was not suffi- cient profit to attract the companies. Then the Government found it best to buy the private roads in order to unify the system and direct traffic in true channels. The private com- panies would underbid each other and carry freight on long routes instead of short ones, entailing a loss of industrial power. Most of the roads in Denmark now are public' The rates are much lower than those made by the private companies, and are made on the zone principle ; that is, with a diminishing ton-mile rate as the distance increases. Unfair discrimination is unknown. The capital is kept down to actual values by writing off depreciation, and as fast as the net profit rises above 2 percent on capital the rates are reduced. I was specially interested in the statement given me by Di- rector-General Ambt, President of the State railways, in rela- tion to the system of profit-sharing which has been in use on the Government roads of Denmark since 1903. All the work- ers, except those in the shops, receive premiums on their wages in proportion to the economy and efficiency attained, as meas- ured by the difference between the expenses and the income. The result of this system has been to stimulate energy and (}) The figures given me by the President of the State railways for 1904 are; 1,864 Icm- for the State lines and 1,336 km. for those in the hands of the companies. The average rates for the whole system are 1.44 cents a ton-mile and .76 of a cent per passenger mile. The freight rate includes express. 380 The Railways, the Trusts, and the People. care, and to produce a marked improvement in the success of the railways. The private companies are obliged to open their books and accounts to Government inspectors, and all their general rules and their rates must be approved by the Government. NORWAY AND SWEDEN. In Norway the first railway was private, but now most all the railroads (2300 kilometers out of 2500. kilometers) are pub- lic and the State holds 95 percent of the stock of the private roads. A quasi zone system is being tried, the freight rate for 500 kilometers being only about 3 times the 100 kilometer rate instead of 5 times. There is also a special long distance tariff with rates above 300 kilo- meters about half what they are below 300 kilometers. It has been in use over three years. The traffic has not been much increased. No discriminations in favor of big shippers exist in Norway. The average freight rate as given me by the management in October, 1904, was 6 ore per ton-kilometer for the private roads and 4.8 ore for the State roads, or 2.6 cents per ton-mile private and 2 cents a ton-mile public. The regular passenger rates are 1.2 cents a mile third class, 1.7 cents second class, and 3.7s cents first class ; the latter is not much used. The average of all classes of travel is 1.16 cents per passenger-mile. There was no profit-sharing last Spring (1905), but the Managing Director of the State railways said he regarded the Denmark system as a good thing and was going to ask Parliament for authority to estab- lish it in Norway. There are no distinct advisory councils, but one farmer and one business man are appointed by the Government as advisory members of the railway directory. In Sweden one-third of the railways are owned and oper- ated by the State. Wages and salaries are a little higher than on the private roads of Sweden, and hours are shorter. There have been no strikes on the Government roads, but there was a strike a few years ago on one of the private roads which re- sulted in securing better wages for the men. There is no profit-sharing as yet, but the plan is regarded favorably, the general manager told me. He had watched the two years' oper- ation of the system in Denmark with much interest, and thought it a good plan. About half rates are given on suburban traffic to help working people to live outside. The private rail- Lessons from Other Lands. 381 ways are under thorough Government control both as to rates, and service. Average ton-kilometer and passenger-kilometer rates are not computed in Sweden. It is like England in this respect. There is an advisory railway council consisting of 8 persons appointed by the Government to represent commerce, manufactures, agriculture and labor. They meet once a year regularly, and the president can call them together at any time. New lines are decided on by the Government on recommendation of the railway administration. There have never been any charges of corruption or extravagance in relation to the construction or operation of the State railways. My question on this point was answered in the negative also by the highest authorities in Germany, Belgium, Denmark, Holland, everywhere in fact except in Italy. The private roads are under good control. The companies do not give free passes to legislators. A number of the members of the national legislature are railway managers or leading stockholders, but the influence they are able to exert on legislation in the way of favoring the railways is not very large. The Government decides as to rates and regulations and inspects the railways carefully and frequently. There is no discrimination in freight or passenger rates. No matter how much poHtical or industrial weight and influence a man may have, he cannot get any free transportation nor any cheaper rates than the man without a pull. The people believe they get better and safer service and at much less cost on the State railways than on the private roads. Practically all highways pass either over or under the railway tracks, and so much care is taken in running the trains that in 15 years, to the end of 1904 (the date of my information), not a single passenger had been killed in an accident. Perhaps the most interesting point in the Scandinavian railway situ.-ition is the care that is taken to provide thorough education and technical training for the railway employees. In Sweden there are night schools for the advanced education of the railways' staff. There is also a seven months' course conducted in connection with the Sunday and night schools and forming a part of the public school system of the nation, in which the instruction in railway science covers the principles of motive power and their application to transportation; the diff^erent kinds of vehicles, couplings, brakes, main- tenances of way, signals, telegraphy, makeup of trains, time tables, the geography of the system and all the other elementary facts connected with the service. In Norway in addition to these elementary branches the Government grants funds for travelling scholarships and maintains two technical schools of a higher grade, and the railway administration grants sums 382 The Railroad Problem. of money and leave of absence six months at a time to enable railway employees to take courses in these schools. Technical training is a large factor in employment and promotion on the Government roads. The officials are mostly men who have gone through the public schools, then to a military school, and then through a technical school. As in Prussia, this regard for thorough technical training helps to account for the skill and safety with which the roads are operated. RUSSIA. The Government of Russia owms over twro-thirds of the railways.^ Almost all the private roads were built under a guaranty of a minimum return per mile. The Government reserved the right of purchase (generally after 20 to 30 years) on the basis of net profits, and it was stipulated that at the end of the franchise term (80 to 90 years) the road should become the property of the State without payment. The first purchases were made because of the insolvency of the roads. But later the State operation of railways was accepted on principle for military and strategic reasons." The private railways are under almost as complete control as the State roads. The Government controls the rates, accounts and technique of the company systems. Rate schedules are submitted to a special council appointed by the Government and composed of representatives of the administration, the private railways, industry and commerce. This council elaborates all the tariffs and they are then published in the semi-weekly tariff statement and become obligatory. This method applies to State as well as to private roads. The rates are practically the same on both systems. The average freight rate is I cent per ton- mile, and the average passenger rate is .69 of a cent a mile. The Imperial railways have been managed in the public interest to a considerable extent, but one must not make the mistake of supposing that the State roads of Russia are public property. In Germany, in spite of the Imperial apex to the Government, the people through their (1) In 1904 the mileage of the Government roads was 24,639, and of the private roads 10,930, a total of 35,569. There were also 1,323 miles of local railways not classed with the primary systems. (^) Fifteen years ago over two-thirds of the railways were still in private hands. The inadequacy of their management in time of famine gave the Govern- ment an object lesson that did much to change the policy of the State. At one time there was a congestion of 11,000 cars, a tenth of the rolling stock of all the Russian railways blocked, and communication suspended for weeks. The War Ministry was in consternation. What might happen if in case of war a sudden requisition were made for men and material? It might be fatal. Moreover, the famine itself was due in large part to the inefficiency and inflexibility of the rail- ways. They would not lower their rates to meet the situation, nor even carry promptly such provisions as could move at existing rates. The English Vice- Consul at Kieff reported that there was "no such failure of harvest as had been represented. Tho there was famine in some places there was abundance in other parts of Russia, and the whole trouble arose from the breakdown of the railway system, so that while the people were starving in some districts, grain was rotting in the Caucasus. Lessons from Other Lands. 383 representatives have final, control over the railways, and more actual share in their administration than the people of any other country I know of. But Russia supplies an excellent illustration of the fact that Government railways are not always public railways. There is Government ownership of railways in Russia, but no public ownership, because the people do not own the Government. The railways are administered to a considerable extent in the public interest just as they are by a private corporation, but where the interest of the Imperial Despotism that has held Russia in its grasp so long departs from the public interest, the Imperial railways go with the Czar and the Bureau- cracy and become a means of oppression instead of service. The rail- ways of Russia are really managed under the worst possible form of private ownership — a private ownership that holds for the benefit of a small class, not only the railways, but the whole country and the people in it as live stock on the Imperial Farm. The day is dawning, however,, in Russia, and the time may soon come when the railways will be not- only Government property but public property also. JAPAN. The first railway in Japan was a Government road, and one-third of the roads are now public. The Government fixes maximum and minimum rates and leaves the companies free between those limits, except that the Minister of Railways has sufficient control to compel fair rates if the companies try to discriminate. The Japanese railway officers I have talked with said that the Government did not intend to have any such ar- rangements as those which American railways make with the Beef Trust and other combines. The Government pays the private roads for carrying the mail at much lower rates than ordinary freight rates. There is no railroad lobby, and the private roads do not give passes, to legislators. There are a few railroad directors in Parliament, but they have no special influence. The Government roads give premiums and bonuses to fire- men and engineers for economy of fuel and efficiency of service. There is an advisory council appointed by the Government consisting of railroad officials, senators, representatives and eminent persons repre- senting various business interests. The efifect of this, as of similar bodies in Germany, Switzerland,. Sweden, South Africa, and other countries, is to bring the railways into closer touch with the people, prevent friction and litigation, and adjust the service to the needs of business and the wishes of the public. There are important differences, however, between the Japanese advisory system and that adopted by Prussia. There are no district councils as in Germany and Switzerland, and the national council is wholly appointed from above instead of being mostly elected from 384 The Railways, the Trusts, and the People. below. The Japanese council which considers questions of location, construction, financiering and operation, and makes recommendations, is composed of 20 persons representing the Cabinet departments, both houses of the Legislature, the railways and business interests. The law specifically provides for the inclusion of Cabinet officers in the Council. It is said that bureaucratic influence has not mani- fested itself, but there is certainly less of a guaranty against it than under the Prussian system, where the law expressly excludes from the Council all immediate State officials. The law as to private railways (passed in May, 1887) contains many excellent provisions, especially in relation to the granting of charters, inspection and control of rates, accounts and service, and provisions for safety.^ The Government reserved the right to purchase railways after 25 years of chartered existence on the basis of the average price of shares during the 5 years preceding the purchase. Notwithstanding the large control already exerted by the Government over private railways, a congress of representatives of Japanese cham- bers of commerce, after the recent war with Russia, passed resolutions declaring for a more complete control of the railways as to their business methods. The Government has elaborated a plan for nationalizing the private roads on the basis of 20 times the average annual profits for the 3 years preceding the war. The cost is estimated at $250,000,000. Stock is to be paid for in 5 percent bonds redeemable within 45 years, and the net revenues of the railways are to be devoted to paying interest and redeeming the bonds so as to clear off the capital charges as soon as may be reasonably practicable.^ This plan presented in a bill before the Parliament this year (1906) has passed the House of Representatives by a vote of 243 to 109. The Japanese, both in war and peace, have shown the most wonderful receptivity and judgment in adopting the best ideas and institutions of (}) A company desiring to build a road must apply to the Central Government through the provincial authorities. If the Government approves the project on general principles the incorporators are given permission to submit detailed state- ments regarding the lines, work, means, cost, and rules of the company. This opens the matter to competition. If the new railway would interfere unduly with existing roads, or is in any way against public policy or does not seem to be needful, the proposal is rejected. When a charter is granted, the road must be constructed under Government supervision and cannot be opened until it is approved and a "grant to begin business" is given the company. The law requires Government inspection after the road is in operation as well as during the period of construction, and if at any time inspection reveals defects which prejudice public safety or comfort, repairs and even rebuilding may be ordered. Railway accounts are carefully regulated and inspected. No company can bond its road for more than half the amount paid in by shareholders. In addition to all this the Department of Communication may order all private railway companies to do those things which are required of State railways for the purpose of insuring public safety and promoting the public good. All regulations of State railways apply to private railways, unless specially ordered otherwise. If a company desires to make changes in the operation of its road it must iirst secure permission from the Government. Rates are established and changed under the direction of the Department of Communication, and maximum rates are established in the law. (2) In view of the rapidly increasing commercial importance of the railways, it is estimated that after the extinction of the bonds the yearly net profit from the railways to the State will equal the entire gross receipts at the present time, a profit which can be devoted to the reduction of rates and improvement of service or to other public purposes. Lessons from Other Lands. 385 other lands. And the skill, efficiency, public spirit and power of organ- ization they have shown leave no room for doubt of their success in the management of State railways. CANADA. In Canada a small part of the railway system is public property and the Government exerts large control over the private roads. A railway commission of three appointed by the Governor in Council for ten years (but removable at any time by the Governor in Council for cause) has absolute power over rates, classification, speed, safety appliances, etc. The railways may submit tariffs, but the board can approve or disapprove of them in whole or in part, and prescribe such rates and classification as it deems best, and the railroads cannot charge either more nor less than the rates authorized by the commission. All undue preferences between persons and localities in rates or facilities are for- bidden, but "the tolls for larger quantities, greater numbers, or longer distances may be proportionately less than the tolls for smaller quanti- ties or numbers, or shorter distances, charged equally to all persons. The board shall not approve or allow any toll, which for the like description of goods or for passengers, carried under substantially similar circumstances and conditions in the same direction over the same line, is greater for a shorter than a longer distance, unless the board is satisfied that, owing to competition, it is expedient to allow such a toll." The burden of proof is on the company to show that any difference of treatment does not amount to an unjust discrimination. And "the board may determine, as questions of fact, whether or not traffic is or has been carried under substantially similar .circumstances and conditions, and whether there has, in any case, been unjust dis- crimination, or undue or unreasonable preference or advantage, or prejudice or disadvantage, within the meaning of this Act, or whether in any case the company has or has not complied with the provisions of this and the last preceding section ; and may by regulation declare what shall constitute substantially similar circumstances and conditions, or unjust or unreasonable preferences, advantages, prejudices, or disad- vantages within the meaning of this Act, or what shall constitute com- pliance or non-compliance with the provisions of this and the last pre- ceding section relating to discrimination, long-haul," etc. No Supreme Court rulings can knock out this commission, for it has clear authority in the law to interpret its provisions as it deems best to accomplish the purpose in view. Whether this new law will work well or ill is not yet apparent. SOUTH AMERICA. Some of the South American States own a considerable part of their railway systems; Chili, for example, owns over half the railways, and 386 The Railroad Problem. Brazil holds about two-thirds of the primary roads in that country.' In ChiH the principal line is owned by the State. It runs from' Santiago to Valparaiso and south to Concepcion, Angol and Victoria. It is said to be fairly well made and well managed. Its trains have the reputation of being among the best and speediest in South America. The Central Railway of Brazil is one of the best properties in South America and it is operated by the Government at a large profit, in spite of the fact that the road is not by any means free from the influence of the political philosophy which regards public property as a convenient means of employing adherents of the Government. Brazil leases some of the railways she owns, but several attempts to secure a lease of this great system have failed. The Government guarantees of private roads have been the chief source of trouble. In 1900 the United States of Brazil operated 1,287 miles of railway, the States operated no miles, guaranteed companies operated 4,587 miles and other companies 3.213 miles. The guarantee system put a premium on bad administration and the Government found the burden of the guarantees very heavy. A radical change of policy has now taken place, long since contemplated but only recently carried out, namely, the buying up of the guaranteed railways by the Federal Government. This has now been accomplished in large part, the Union having purchased on very satisfactory terms 11 of the guaranteed roads with 1,339 miles of line. The annual savings resulting to the nation from these purchases are estimated at nearly two million dollars.* The Argentine Republic has about 12,000 miles of railway, of which the Government owns a small part, and guarantees a very large part. There is no system about railway construction. Numerous duplicate roads have been built, sometimes running within a few miles of each other. Many railways have been projected and charters secured simply to be bought out by the roads they would injure. The British Consul warns investors to be very careful about investing in these Argentine companies." There are some Government railways in other States that are not well managed, which is also the case with most of the private companies. The general opinion as to a number of the States is that neither the Governments nor the companies, whether foreign or local, are thor- oughly fit to be trusted with railways. The custom of granting con- cessions to railway companies with a Government guarantee of 5 to 7 percent dividends, which has been followed so largely in the Argentine Republic, Brazil and other States (in order to tempt English and American capital), together with foreign boards of directors acting at (') In 1904 there were 10,409 miles of railway in Brazil; 3,940 miles of local line and 6,468 miles of primary railroads. Of the primary lines, the State owned 2,27s miles and leased 2,023, while 1,370 miles were private roads. Out of 3,206 miles of railroad in Chili, 1,698 belong to the State, according to information teceived in 1905. * See British Diplomatic and Consular Reports, 1904-5, No. 2,928, where a very full account of the purchase may be found. The lines cost the Government about $46,500,000, or $35,000 a mile. Payment was made in 4 percent bonds, which were floated in London. (}) British Dip. and Cons. Reports, 1905, No. 3,434, p. 8. Lessons from Other Lands. 387 a distance of thousands of miles from the railways they controlled, different gauges in the same State (four different gauges in Argentine alone), frequent revolutions and changes of rulers, too many of them neither honest nor capable; depreciation of currency, repudiation of agreements, and a population largely tinctured with Spanish and Portu- gese stock, have made the building and operation of railways in South America an unprofitable subject,' except for those who have to contend with South American conditions. Yet bad as the record is, I have neither read nor heard of anything in South American railway history anywhere near as bad as the history of Erie under the Gould-Fisk management. Conditions have been improving in recent years in Brazil and other States, but they will have to improve a good deal more before their railway systems come within range of American or European standards,, economically or socially. You might as well go to the battleships Dewey sank in Manilla Bay for your warship models as to South America for your railway models. Yon will get points from the war- ships of England, Germany, Japan and the United States, but not from Spanish ships; same way with the railways of South America, and yet railway politics are not as rotten in South America as in the United States, nor are the railways used with any such persistency and power to build up the fortunes of a few at the expense of the many as is the case under our Standard Oil-Steel-Beef-Sugar system of railway man- agement. The experience of South American States is valuable in one respect, for it illustrates with vivid clearness the important truth that even public ownership and operation of railways cannot avoid serious evils, if the reasonable safeguards and conditions of success are not estab- lished. SOUTH AFRICA. In South Africa the first railways were private, but they are now practically all public, the Government having taken them over in order that they might be managed in such a way as to further the develop- ment of the country; the private railways naturally tending to confine themselves to traffic that would yield a profit instead of regarding the future development of the Commonwealth. From, conversations with the general traffic manager and other high officials of the South African railways and from the Government reports, I make the following statements :■ The roads are under the control of a railway committee of Parliament elected for one year, but continued in office year after year. No press- ure is brought to bear by members of Parliament to get positions for (') This applies to State roads as a rule and to tlie private railways, also. Even an Anglo-Saxon management located in another hemisphere cannot be expected to secure very good results, especially if the Government guarantees good dividends anyway. Some years ago an English Consul reported that of 14 companies in Brazil controlled by English boards of directors, only two were self-supporting; ■the rest relied on the Government guarantee. 388 The Railways, the Trusts, and the People. friends or constituents. The management is left entirely free in the selection and control of the men. "Could you do the work any more economically and efficiently or with a smaller staff if you owned the roads yourself, or if a private company owned them?" I asked the general manager. "No," he replied, "the policy of the government is to conduct the roads on business principles for the service of the public." "Have you had any labor troubles?" "Only in one case where there was a misunderstanding on the part of a small section of our employees in respect to their compensation. They tied up 123 miles out of 1,600 (there are now about 2,500 miles). But the trouble lasted only one day. As soon as the men understood the position of the management they went back to work. "The average wages of our men amounts to $1,000 a year, exclusive of all the high paid artisans in the shops. The salary of the general man- ager, the highest paid man in the service, is $17,000 a year. The men work on a lo-hour day except in the repair shops, where they have an 8-hour day. We treat our men well in every respect. That is one of the definite purposes of the management." The rates are elastic. The management may make any rates the cir- cumstances may require, but all rates must be public, and no preference must be given or any personal discrimination of any kind indulged in. How completely this principle is carried out we have already seen in Chapter HI. All through the country, school children are carried free to school wherever they are not near enough to walk. Very low rates are made on agricultural products. The railways collect and deliver all freight, baggage and parcels. The charge for collecting and delivering any valise, or box, or package is 10 cents ; 5 cents for collecting and S cents for delivery. When the passenger and his baggage get to destination the baggage is delivered at once, without any of the delays that so aggravate foreigners in this country. Excess baggage goes at rates about double the freight rates. Packages go by parcels post up to 11 pounds, and above that weight the freight rates are applied. A package of 200 pounds, for example, goes by passenger train at ordinary freight rates. Representatives of chambers of commerce, town and city councils, and chambers of raining and some other organizations meet with the railway managers once in three months to consider railway questions, give advice, and make recommendations. The chambers of commerce, munic- ipal councils, etc., may propose questions for consideration. This keeps the management in close touch with commercial and public interests throughout the Commonwealth. It gives the public an initiative, and affords a definite means for the crystallization and expression of public sentiment. The railway management has a veto, but has never had occasion to use it. Purely local questions are discussed in small meet- ings of special railway officers with the representatives of the councils. Lessons from Other Lands. 389 chambers of commerce, etc., of the localities affected. These discus- sions with the people have had excellent effects in producing good feel- ing, general harmony and satisfaction, and thorough understanding between the public and the railways. "Can you see the effects clearly?" "Yes, beyond question. The five quarterly meetings already held have resulted in a distinct gain in harmony and good feeling, and in securing more convenient service accurately adapted to the public need. The only way to tell what the people want is to consult them." NATAL. The first railroad in Natal was private and could not meet its obliga- tions. The Government took it over and built other roads. Practically all the roads are now public. An effort is being made to co-ordinate all the railroads in South Africa to secure unity of operation. There is no profit-sharing, nor are there premiums for efficiency, nor any representative advisory bodies. The railway men have a trade union. About four years agO' there was a strike in the railway shops for increase of wages. The Government gave the increase asked for. There is now an arbitration board, or board of appeal, to which the railway men can carry complaints. The spoils system does not prevail and no trouble is experienced with efforts of legislators trying to get positions for their friends. There has been, however, some difficulty in Natal arising from the use of polit- ical influence and log-rolling to get new lines. Discriminations are unknown, altho rates are very flexible, being made not only with reference to distance and cost, but with a view to the increase of business and development of the colony. Very low rates are made for agricultural products, for educational purposes, and on the workingmen's trains which carry passengers night and morning in and out of Durbin, a distance of 20 miles; weekly tickets are given at less than half the regular rates. The railways collect and deliver baggage, parcels and freight. AUSTRALIA. The first two railways in Australia were undertaken by private companies in New South Wales, but the companies were not able to carry out the enterprise and the Government took over the properties in 1855. Since then the railways for the most part have been built by the State governments ; and to-day nearly the whole railway system of Australia belongs to and is operated by the States ; the only exception of any conse- quence being the Midland Railway in West Australia with less than two hundredths of the total mileage. The principal _3go The Railroad Problem. reason at first was the scarcity of private capital, and later the need of railways for the development of the country in regions where private capital would not go for lack of the prospect of immediate profit. Railways have at times been built too fast even for a builder who looks to the future for his returns. Australia suffers every now and then from terrible droughts, which cripple her industries and cut down the income of the railways. If it had not been for these droughts, the railways built through sparsely settled regions might soon have been justified by the influx of population. But frequent depressions and dis- asters due to natural causes have kept back the growth of population, and to-day the continent, with an area substantially the same as that of the United States, has only about one-twentieth of the population we have. Railways through sparsely settled country cannot be expected to do as well as railways through thickly populated districts. Considering this and the handicap of the droughts and industrial depressions, it is believed that the railways of Australia have made a very creditable showing,^ even on the direct financial returns without considering the values they have produced indirectly and the increased general income of the Governments through the tax returns from districts developed by the State railways. Dividends constitute a very inadequate test of the value of the rail- way contribution to the wealth of a country. "Land values alone are •often doubled and in nearly every case they are enhanced in value from 25 to so percent according to their distance from the railway," says a Victorian authority. And it has been urged that the landowners ought (^) The gross earnings for 1904 were, in round numbers, $54,500,000, and the working expenses $34,500,000, leaving $20,000,000 of proiit or nearly 40 percent of -the receipts and over 3 percent on the total capital cost to date. Some of the States make less than 3 percent, some more; for Queensland it is 2.36 percent; for TSTew South Wales 2.78 percent; Victoria 3.43 percent; South Australia 3.59 per- 'Cent; West Australia 4.56 percent. For the last 10 years the roads of West Australia have made a good profit and a considerable margin above the interest on the railway debt. The other States as a rule do not quite cover interest owing to the causes stated in the text and the rates on agricultural products, which are very low considering the conditions of the traffic. Small margins are paid out Kjf the general treasury, running from i-io of i percent in South Australia and 1-3 of I percent in Victoria to 1.67 percent in Tasmania. Ton-mile averages are not reported by the Australian States any more than by the IJnglish roads. _ Mr. Pickering, of the South Australian service, has estimated the ton-mile statistics for that State and kindly alowed me to take from his stores of fact such data as I desired, but my notes on this point have unfortunately been mislaid. I remember that the ton-mile rates were considerably lower than the estimates for England, but much higher than our average, as might naturally be expected from the undeveloped conditions of the country, the small amount of business per mile as compared with our enormous traffic, and the entire absence of rebates or conces- sions to favored shippers. The passenger fares are considerably lower than ours, which is the contrary of what might be expected from the physical and traffic conditions prevailing in the two countries. From Melbourne to Heidelberg, for example, the fare, second class (which is ordinarily used), amounts to 13 cents for 8 miles, or about 1.6 cents a mile; to Danbury, j8 miles, 22 cents, or 1.2 cents a mile; to Whittlesea, 27 miles, 40 cents, or 1.5 cents a mile. For the express trains on the long routes the fares are higher. From Melbourne to Ballaret, for instance, the fare is $2.14 for 74 miles, or 2.9 cents a mile; to Healsville, 38 miles, 84 cents, or 2.2 cents a mile; to Wondoga, 187 miles, $6, or 3.2 cents a mile. The Australian railways do not use three classes of cars as in Europe, but only first and second class. Lessons from Other Lands. 391 to be made to pay a part or the whole of the cost of building the State railways out of the unearned increment they receive from such con- struction. The railway debt of Australia has been held up as a warning to other countries not to engage in building State railways. But as a matter of fact the^^railways have been for the most part very economically con- structed/ and the roads are worth to-day more than the railway debt, and would probably sell at a very large margin above the debt. Several years ago, when times were dull and the railway debt was being severely criticized in England, a high Australian authority said: "The Govern- ment of Victoria is credibly informed that it can sell its lines at full cost, or can lease them at a figure that will pay all expenses and bring in a good return to the general revenue. It may be asked why the Gov- ernment does not adopt this course ; and the answer is that private own- ers would send up freights and fares and would squeeze the users, and that the users do not wish to be squeezed. They prefer that all profits should come to them. . . . The often ruinous expense of unneces- sary competing lines has been avoided. There are no two roads any- where doing the work which could be done by one." The people understand perfectly well that if they sell their railways, or by means of land grants or other charter grants permit private com- panies to get any strong hold on the transportation system, they must bid farewell to low rates and fares and other advantages present and prospective. The people of Australia are practically a unit in favor of Government railways, and a proposition to turn the railways over to private operation would not stand a ghost of a show in any Australasian Parliament. The critics of Australian railways neglect this important fact, and also forget that debt which represents productive assets must be clearly dis- tinguished from debt which is dead weight," and that even the latter sort of debt is cheerfully incurred in vast amounts for public purposes in all civilized countries, including our own : witness our big debts for highways, parks, schools and other properties that do not pay any direct financial return at all. It must not be forgotten either that the weight of private railway debt rests on the people just as truly as if they owned the roads. They have to pay the interest and dividends on the railway capital. They have the burden and none of the perquisites. The people of Australia have the perquisites as well as the burden. There is no question that some of the Australian States built railways too fast at times, or that political influence entered into the management and appointments in the earlier days and materially interfered with the eiificiency of the railways. That these evils existed in several of the (') South Australia and Queensland have built their roads at a total capital cost to date of $35,000 a mile; Victoria, $58,000; West Australia, $28,000, etc., an average of $47,500 a mile for the whole of Australia. Considering the enormous cost of rails, locomotives and cars^ transported from England and America in large part, and the high wages prevailing in Australia, the record is not at all bad. (^) This matter has been so fully dealt with in "The Story of New Zealand," in the Equity Series, that elaboration of the important principle involved is not necessary here. 392 The Railways, the Trusts, and the People. Australian States is unquestionable, but they were not allowed to go on year after year without eflfective protest and the adoption of measures to eliminate them. The very members of Parliament who had been driven by political considerations to seek appointments in railway ser- vice for constituents and friends led the protest against the continuance of the system that made such contamination of the public service pos- sible. The plan adopted was to put the railways in the hands of a non- political board of trustee commissioners with practically full control of the management and operation of the railways on behalf of the public. Victoria led off in the establishment of this system in 1883; South Australia followed in 1887, and New South Wales and Qaieensland in 1888. West Australia has also established the trustee system, but with one commissioner instead of three as in the other States.* The Commonwealth is without the luxury of watered stock. There are no railway lobbies, no midnight tariffs or Standard Oil-Beef rebates," or railway kings using the railroads to capture the wealth of the country for themselves. It is possible that Australia may manage to get along without these things. But what she does need is the unification of her railway system under Federal control. There is talk of this already, tho the States have been united only a few years and national spirit is not yet as strong as in countries that have had a national organization for a century or more. There is not much interstate traffic on the railways as yet, owing partly to the fact that the population and the railway systems largely focus about the capitals of the various States, partly because water transportation from capital to capital is very cheap, and partly because the railways are not all of the same gauge. New South Wales has the standard gauge, while Victoria and South Australia have the narrow gauge. Trains have to be loaded and unloaded at the border lines. It is probable that the roads will be changed to the same gauge and united in a national system. The Federal Parliament has already (in the fall of. 1904) passed an arbitration act for the judicial settlement of in- dustrial disputes extending beyond the limits of any one State, including (*) Queensland and Victoria and South Australia afterward cut the number of commissioners down to one, but Victoria returned to the tripartite board in 1903. New Zealand adopted the trustee plan in 1887, but in 1894 the Government resumed charge of the lines, a general manager being appointed who is responsible directly to the Minister of Railways. As long as Richard J. Seddon is Premier of New Zealand and Sir Joseph Ward is Minister of Railways, the direct system of raanagment is likely to work without a flaw in New Zealand. They are two of the finest men in the world, andthey can do what many others could »ot accom- plish. Perhaps New Zealand is civilized enough anyway to stand the strain of direct union of the railway management and the political Government. But if men of lower power and character should come into political leadership. New Zealand may find it best to adopt once more under careful safeguards the trustee system of railway management which has proved so perfect a bar to political inter- ference in Australia. (=) Preferences have been given by the private railways in the effort to capture traffic, but some of the best informed railway authorities of Australia were unable to tell me of any cases of discrimination on the State railways. The only case that I have been able to discover where there was any semblance of a claim that discrimination existed was an open rate case which is described below in the account of South Australia, and the reader will see that it was not a case of dis- crimination at all in the sense in which we use the word, and upon full discussion Parliament completely sustained the position of the State railway management as just and proper. Lessons from Other Lands. 393 disputes in relation to employment on State railways or employment in an mdustry carried on by or under the control of the Commonwealth or a State or any public authority established under the Commonwealth or a State. This will make it very easy to put a national railway system, on a good basis in respect to labor difficulties, and a Government wise enough to adopt such methods as this is not likely to fail in reference to the other elements of the problem. Neiv South Wales: Nearly all the railways in New South Wales and the street railways, too, both in the cities and outside, were built by the State. With the exception of a few unimportant lines the whole of the steam and electric roads are operated by the Government as one sys- tem. The properties are vested in a board of three commissioners chosen for seven-year terms. The legal title is in them as trustees for the peo- ple, and they control the policy of the roads. But if they want to make any general change of rates or conditions, the law requires them to get the approval of the Cabinet. Prior to 1888 the railways were practically under the direct control of Parliament and the Ministry of the day. There was a commission, but it was not a trustee commission. Political influence was felt in appointments and experience indicated the desirability of removing the working of the railways from political control, both for the sake of the railroads and for the relief of the Parliament and the administration. So the Railway Act of 1888—51 Vic. No. 35— was passed appointing a non-political board with very large powers amounting to political con- trol of railway operation on behalf of the public. The plan has worked well.' The Government had been overwhelmed at times with applications for situations, and more had been em- ployed than were required. The commissioners reorganized the ser- vice, reduced the staff to what was needed, and introduced order and economy in the business.^ Employees are appointed upon examination, and the best men all round are chosen. The working day is 8 hours and the wages are good ($1.75 a day for common labor). There are no strikes. There is a representative Appeal Board to try grievances against the management relating to fines, reductions, dismissals, etc., but not broad questions of wages and hours. The railway men are under the Industrial Arbitration Act which covers wages, hours and all n Sir Henry Parkes, for many years Premier of New Soutii Wales, said in speaking of this _ measure : "Few acts of my public life have given me more unmixed satisfaction than the change in the management of the State railways." The earlier non-trustee commissioners were by no means so secure from politi- cal control as trustee commissioners with the fee simple titl^ to the roads, holding for a considerable term and responsible only for misconduct or incompe- tence like a judge of the Supreme Court or a railway receiver. The only reason for the adoption of the trustee commissioner system was to free the service entirely from political influence. The Parliamentary debates on the bill of 1888 make this very clear, great praise being given to the old management, and Parliament almost unanimously demanding the reappointment of the old com- missioners under the new system. (') The first chairman of the board, Mr. Eddy, a railway expert from England, was attacked by false and reckless charges which were proved to be groundless, and public opinion sanctioned the new management. At a meeting of 5,000 citizens in Sydney, the commissioners were presented with an address of confidence signed by 20,000 electors. 394 The Railroad Problem. other labor disputes. There is no system of profit-sharing. Neither are there any advisory councils. One of the principal men in the service said in reply to my question on this point : "I don't think anything of that sort is needed in New South Wales. The chambers of commerce and other organizations are quite free enough in pressing their desires on the railway management." The passenger rates are about 2 cents a mile. For suburban traffic commutation rates are made of 50 cents a week 6 miles in and out, and $1 a week up to 24 miles in and out. School children are carried free to the nearest school. Agricultural rates are very low. If profits go above 4 percent, rates are reduced. Victoria: All the railways of Victoria belong to the State. The points of special interest in Victorian railway history cluster about the commissioner trustee system established in 1883 and the railway strike of 1903. Victoria was the first to adopt the plan of a non-political board or trustee commission placed in full control of the railways in order to separate the roads from party poUtics and political control. The roads were vested in a commission of three with Mr. Speight, a highly expe- rienced railway manager, at its head. After nearly ten years of very successful management under this system, business depression and finan- cial difficulty cortfronted the administration, due in part to the overrapid construction of railways. The trouble was laid to the commissioners, altho it was really not their fault. They did not control the building of new lines, which were sanctioned by Parliament and the Board of Public Works. The commissioners had in 1891 protested against overconstruc- tion of lines that could not be expected to pay for years, and advised a rest in construction for three years to let the roads catch up. These facts did not deter the Ministry. The administration was in trouble. Somebody must act in the capacity of scapegoat, and the Prime Min- ister, Mr. Shiels, drew the lot for the commissioners. Charges were trumped up against them and they were dismissed.^ The Minister would have dismissed the commisioners without a hear- ing and without compensation, but Parliament would not permit this. A hearing was ordered and the commissioners' record proved so good that the Minister was forced to withdraw his charges and retire the men on half pay. The commissioners were afterwards completely ex- onerated. A new board of "acting commissioners" was established. These men were merely appointees of the Minister and subject to his control. Once more pohtical pull came into play, but it was short-lived. Within three years an inquiry board that had been appointed to look into this new evil made the Government see and acknowledge the error. "The board complained of the political influences which permeated every (1) The main charge was that they had spent too much money on the railways. The fact was that they had built the lines authorized by Parliament in a solid, efficient manner as being more economical in the end than inferior work. Lessons from Other Lands. 395 branch of the service as being among the chief causes of the unsatisfac- tory working of the railways." The number of employees was in excess of the need. Political influence destroyed discipline. Reduction in rates and fares was made to please politicians. Unprofitable lines had been constructed for political reasons. In 1896 the Parliament passed a new railway act putting the roads in the hands of a trustee commissioner and establishing a "Board of Railway Advice," or railway council of six members, who have power to decide all disputes and exercise real judicial power in all matters of railway administration. In 1903 Victoria again modified her system by vesting the railways in three commissioners instead of one. The trustee system appears to have worked admirably, and is now thoroughly imbedded in the policy of the State. The railway strike. May, 1903, resulted from a dispute about the affiliation of the railway unions with other labor organizations in such a way that the central labor council would have the power to order the railway men out on sympathetic strike. The railway engineers asserted their right to affiliate with the central trades council. The Government did not object to the union of rail- way men or to any other union, nor to the central trades council, but objected to the affiliation of the railway employees with other unions with the consequent power of the central labor body to call out Govern- ment employees in sympathetic strike, and to take a hand in determining the wages and hours of the Government employees. The men struck to enforce their contention. The strike stopped all freight traffic. Over 11,000 employees were involved, there was some violence, locomotives derailed, rails greased, etc. The strike lasted five days. The Govern- ment called Parliament in extra session and introcluced a bill making participation in the strike penal. This bill was introduced on the isth, and the men began to weaken. By the 17th many had returned to work and so trains were running. The strike was a complete failure from the strikers' point of view. Even from the start the Government was able to provide a limited passenger service, altho freight was sus- pended for two days. After the collapse of the strike everybody, includ- ing the labor leaders, acknowledged that the strike was ill-advised. As a rule the workingmen of Australia believe that industrial arbitra- tion is a better method of settling disputes than industrial battle. The Federal Parliament has now passed an arbitration law for the whole Commonwealth. South Australia: In South Australia all the railroads are public. The only private road is a mining side line not open for general business. The spoils system is absent and political influence in securing positions is little in evidence, legislators and others in authority rarely attempting such use of their power. But political influence is felt in the construc- tion of new lines. The railway authorities themselves tell me that log- rolling enters here to some extent, but as no new construction can be 396 The Railways, the Trusts, and the People. undertaken without a report upon it by the Railway Commissioner, no serious trouble results.' The Railway Commissioner must report all the rates he makes to Parliament, which approves or vetoes them as it deems best. In 1901, in consequence of the disastrous droughts which are the scourge of Australia, the farmers were in distress ; and to enable them to send their live stock to places where there was pasture the Government railways made half rates and took the farmers' notes for 12 months for payment. When the notes were due the farmers were still in bad shape, and the Government paid the notes itself. The aim of the management is service at cost — operating expenses plus interest on actual net investment; and the Government is constantly reducing rates on lines that are making more than this. Some years ago, in a time of depression when the roads were not doing well financially, the Government asked the commissioner to make them pay better. He said they could make money by changing back from the 8-hour day to the former, 91^ to 10 hour day. A bill was intro- duced for this purpose, but it was voted down. Parliament thought the 8-hour day was worth more to the country than a profit from the railways. The railway men have a union, and many of them belong to it. The law prevents striking, but provides a board of appeal, on which the Government, the railway management and the men are represented, to deal with grievances arising from the decisions of superior officers, fines, reductions in pay, dismissals, etc. Appeals in relation to wages and hours go to the commissioner or to Parliament through representatives favorable to the men. There is no unfair discrimination. I have been able to get hold of only one case supposed to involve any such element. Martin & Com- pany, a large firm manufacturing harvesters, had shops at Gawler, 25 miles from Adelaide. Another firm at Ballarat, in Victoria, 400 miles away, was also making harvesters. This firm could ship to Melbourne, and from there by water to Adelaide, more cheaply than they could ship by rail to Adelaide. They said to the Railway Commissioner that if he'd give them low rates to meet the water competition they would ship by rail. The commissioner made the rate. Then Martin & Company com- plained that the Victoria people were taking away their business, and asked for cut rates to go into Victoria and invade the invader's territory. The commissioner said : "All right ; I'll give you the same rates." But they were car-load rates, and Martin couldn't ship in carloads, because he hadn't sufficient orders to warrant it. He demanded the same rate per hundred on small shipments that the Victoria firm paid by the car- (}) South Australia, like New Zealand, was settled for the most part by selected immigrants, while New South Wales and Victoria were used by Great Britain in the early days as dumping grounds for criminals and other social refuse. They began with the worst; South Australia and New Zealand began with the best. That fact may account in part for the practical freedom of the latter colonies from the serious political difficulties experienced in New South Wales and Victoria, and for the great success of direct Government administration of railways in New Zealand. Lessons from Other Lands. 397 load. This the commissioner refused. The matter went to Parliament, and it unanimously sustained the commissioner. • Engineers receive yearly premiums for good service. There are no advisory councils. Parcels are collected and delivered by the railways, but not freight or baggage. West Australia: For the facts in regard to Queensland, West Austra- lia and Tasmania I have had to depend entirely on correspondence and printed matter, which are most valuable aids, but cannot well supply the place of direct contact with men who have all the facts at their finger ends, especially in researches into the general political, social and indus- trial effects of railway systems, which are not usually dealt with in printed statements. I may note, however, condensing the replies of the Railway Minister for Tasmania and the commissions of West Australia and Queensland, that there have been no charges of corruption in the construction or operation of the State railways ; that private railways where they exist "have little or no influence in Parliament, and have not been charged with attempting to corrupt the Government;" that they "have given • preferences in freight rates in order to secure as much of the traffic as possible," and that "where railways have been transferred from private to public operation the effect has been to increase efficiency and reduce rates." NEW ZEALAND. The railway history of New Zealand furnishes an excellent illustration of the difiference between real and fictitious public ownership and the value of a real public system to the people. In 1870 the railways were nationalized and between $60,000,000 and $70,000,000 in land and money were appropriated for rail- way expansion and improvement in the next ten years. This for a community of 250,000 was a bold bid for development; equivalent in fact to an appropriation of eighteen billion dol- lars, or twenty billion dollars for public improvements in the United States to-day, or enough to buy up all the railroads and telegraphs in the country, clear out the slums of our giant cities, irrigate the thousands of acres of arid lands, and colonize the needy in co-operative settlements to the mutual benefit of them- selves and the commonwealth. In 1887 a Conservative Government, headed by Sir Harry Atkinson, put the railways in control of a commission or trust consisting of three members appointed by the Governor for a five-year term and not removable except for misconduct. Premier Atkinson was the principal financier of the Colony and leader of the great landlord class which then controlled the Government. He was prone to look at everything 398 The Railroad Problem. from the standpoint of taxation and finance. He wished to commercial- ize the railways by transferring them to an absolute commission, and he accompKshed his purpose. Commissioners were appointed after the Premier's own heart — men who would strive to make the railways yield a profit. It was a commercial system, and its managers, during their five-year terms, were almost as much beyond the reach of the people as the managers of our private roads. The divorce between the people and their Parliament on the one hand and the railways on the other was complete. The result was that the roads were run for profit; the, rights of ship- pers and of labor were disregarded; even the public safety was poorly cared for, all for the sake of a pretty balance sheet. The commissioners were honest; there was no corruption, no secret rate-making or favor- itism among shippers, no effort to make money for the managers them- selves ; but they looked at the roads from the standpoint of private business and the class interest of the big taxpayers so far as the making of a profit and the disregard of the people's wishes were concerned. The desire to carry out the purpose of their appointment and win a reputa- tion as able financiers by making the roads pay, as the commissioners of Victoria had done, may also have figured in the case. The result of even this partial departure from the public standpoint, and infusion of private motives, was an administration which proved to be unendurable to a people who had once experienced a truly public management, and had come to look on the railways as their own public highways that ought to be operated in their own interest. In substance and effect, therefore, the roads were for the time being in private or semi-private control ; in the hands of an absolute board managing the system, not for the public service or according to the people's wish, but for their own private purposes (the financial reputation they desired and pigheaded determination to follow their own bent), and for the purpose of the great landowners and taxpayers, whose appointees they practically were. The Conservatives went out of power in 1890, and the Liberals, with the great mass of the common people behind them, came in, but they could not reach the railways nor the policy of the management. Com- plaints grew thicker and thicker and louder and louder till a perfect storm of abuse raged round the devoted heads of the commissioners — "monopolists" and "irresponsible despots," as they were called — but they continued calmly on their financial way. In 1893, the first national elec- tion after the Liberals came into power, the abolition of the commission was made an issue in the campaign, and the people, by an overwhelm- ing majority, elected representatives pledged to put the roads under direct control of the Minister of Railways and the Parliament, and thus bring the railroads within speaking distance of the people. In 1894 this change was accomplished, and since then New Zealand has had real public ownership and operation of her railways. Subject to . excellent civil service regulations, and appeal boards that settle all difficulties between officers and employees, the roads are in the hands Lessons from Other Lands. 399 of the Minister of Railways and the general manager appointed by him, with the ultimate control in the elective Government, which, in fact as well as in name, represents the whole people. The result is that the roads are no longer run for profit, but for service, as already noted. The determination to give rate concessions as fast as the profits rise above 3 percent has resulted in reductions of passenger fares and freight rates amounting, during the period of rising wages and general prosper- ity, from 189s (when the roads came into public control) to 1902 (the last report at hand), to a sum equal to nearly half the total receipts in 1895. equivalent to $500,000,000 of railway reductions in the United States, where, in these same years of prosperity, the private railways have been raising their rates instead of lowering them. While reducing passenger fares and freight rates by what the Minister justly calls "a stupendous amount to have been given away in concessions by way of (voluntary) reductions to the users of the State railways," reductions amounting in some cases to as much as 20 or even 40 percent in a single year on large classes of traffic' While seeking thus to develop the indus- tries of the country to the utmost, the management has greatly improved the service, and carefully adjusted the railways to industrial and social needs. Railway construction is arranged so as to be most vigorous in dull seasons, taking up the disengaged labor that might otherwise be un- employed, helping to balance and steady the market, and enabling the State to build its roads at lower cost than if construction were mainly carried on at times of industrial pressure and high prices. In the farm- er's busy season work on the railways is slackened so that men can go to the farms in the harvest time when extra hands are needed there. The roads are used at cost or less to redistribute the unemployed and to settle the people on the land. The Railway Department works in harmony with the Labor Department in securing work for the workers, and men are carried to points where their labor is needed, and, if neces- sary, their fares are advanced, and they may pay them back to the Government from their earnings when they are able. A definite effort is made to relieve the congested quarters of the cities and attract the tenement dwellers to suburban homes. Workingmen's tickets in and out from the principal points are sold at two shillings a week,^ or twelve rides for 48 cents, within any ordinary reasonable distance. Workingmen going ten or twelve miles out, as many do, travel about three miles for a cent, or a four-cent fare each way. The railways are used to aid the cause of education. Children in the primary grades are carried free to school. Older children pay $2.50 to $5.00, according to age, for a three-months' season ticket up to (}) In 1899, for example, the Minister announced a reduction of 20 percent on ordinary farm products and 40 percent on butter and cheese. (^) They must go before 8 a. m., but may return at any time. On an ' ordinary suburban run a week's travel, in and out each day, starting after 8, costs 4S. 6d. ($1.08), so that the concession to the working people is a 55 percent deduction. Any one, whether a worker or not, may buy the 2s. weekly tickets, but the concession was made for workers, and is chiefly used by them, the 8 o'clock proviso practically limiting it to them. 400 The Railways, the Trusts, and the People. sixty miles. This gives them a possible 120 miles a day for three to six cents, in round numbers, or 20 to 40 miles for a cent. If a child goes in and out six miles each day, he rides twelve miles for three cents. Excursions for school children are arranged in vacation time at the rate of fifty cents for a hundred miles out and back— 200 miles for fifty cents, or four miles for a cent. For teachers and pupils above fifteen years of age the charge is $1 for the same distance. The Minister figures that the department loses on these trips at four miles for a cent, but he justifies the low rates for school and factory excursions on the ground that "from an educational point of view very marked and beneficial re- sults must follow," thus subordinating the lower forms of wealth to the higher. By these excursions the country children come to town, where they are received by school committees, who conduct them over museums, newspaper offices, gas works, ocean steamers, etc., and explain every- thing. A thousand city children see fields of waving yellow wheat, reaped and bound ; see orchards, forests, mountains, lakes and glaciers ; look over sheep runs and cattle ranches ; view dairy farms and cream- eries, and learn about the country and the life of the country people. There is no educative force superior to well-directed travel, especially in youth, when the senses and observing powers, as well as curiosity, open-mindedness and intellectual assimilation are at their keenest. The Railway Report for 1902 says : "School, factory, etc., and holiday excur- sion tickets were introduced by the Government in 1896, and have been a most pronounced success. The number of passengers is nearly double, and the revenue two and one-half times greater than in 1896." Books are carried by the Government to and from libraries at one-fourth the parcel rates ; and newspapers, three pounds 75 miles two cents, any dis- tance six cents, eleven pounds any distance fifty cents.' This New Zealand record is of great interest, not only for the admir- able illustrations of railway usefulness under the rule of enlightened public spirit in the last few years, but also for the experience of former years under the commission management, showing that abnormal or fictitious public control, or control by officers representing a class interest and beyond the reach of the people, may lead to results in many respects quite similar to those attained by private ownership and operation, and directly contrary to the effects of normal public control representing the whole people. We must look to the substance, not the form; the man- agement, not the paper ownership ; the real nature of the control, not its name. If private or class interest is in control, the roads will be run in private or class interest, whether they are "owned" by private capital- ists or corporations or by the State ; but if the control is truly public, the roads will be operated in the public interest ; the pursuit of private interest in the one case and of public interest in the other being success- ful and effective in proportion to the character and ability of the man- agers and their allies. (^) For a fuller account of the railway system of this progressive Anglo-Saxon Commonwealth, see "The Story of New Zealand," Equity Series, 1904. The Aim. 401 Chapter XXIV. THE AIM. Are Railways for Private Profit or Public Service ? Taking a broad view of the railway systems of the world, the most striking fact that presents itself is the difference of aim between the public roads on the one hand and private roads on the other. Studying the railway systems of civilized lands and collating the facts at first hand with reference to the great question of public or private management, it is clear that the two differ fundamentally in the primary purpose they strive to attain, the purpose to which they give their chief solicitude and effort. The primary purpose of a private road is the benefit of the few who own and control it; while the primary purpose of a public road is the benefit of the public — the good of the community. Private management aims at private profit, while public management aims at the service of the people, and if there is any profit it goes into the public treasury and not into the pockets of a few stockholders.* In Germany, Switzerland, Austria and Australasia, so far as the railways are in public control, service is the aim and profit is a secondary consideration; while in this country, Great Britain, France and Spain, where the roads are operated by private direction, profit is the aim and service a secondary consideration. Of course the managers of either public or private railways may prove unfaithful to their trust; in the one case managing the road for the benefit of themselves and their 'favorites instead of the public, in the other case managing the road for the benefit of themselves and their friends instead of the (') In dealing with these contrasts it must be clearly recognized that no blame attaches to i>rivate managers for seeking private profit so long as the business is conducted fairly. In the present stage of moral evolution, at any rate, it is not against conscience for a man or a group of men to manage for their private profit the property to which the laws accord them a title. It is perfectljr natural that individual or class ownership and control shall seek to serve individual or class interest, and that public ownership and control should serve the public interest. A manager who gives secret rebates or other unjust advantages to favored ship- pers, or otherwise violates law or conscience ought of course to be censured witu all possible force, and is entitled to be severely punished too; but one who by honorable methods aims to make dividends for his company is to be commended. He is doing his duty by his employers. If a business belongs to some one else you can't expect him to run it for your benefit. Only when the business belongs to you have you a right to expect that it shall be operated in your interest. And it is the same with a nation as with a man. 402 The Railroad Problem. stockholders. But when the managers are true to their trust, as is generally the case, the public management conducts the roads with prime regard to service, while the private manage- ment acts with prime regard to profit. How essential and inherent in the nature of the two systems this dif- ference is, may be seen by the fact that it is not confined to railways but extends throughout the spheres of public and private business. The private turnpike is maintained for profit; the public highway is main- tained for service, and profit has sunk so far out of view that no toll at all is collected for use of the public way. The private express makes high charges on most of its business for the sake of profit; the public post makes very low charges for the sake of service regardless of profit. The private telegraph and telephone charge high rates that their margin may be large ; while public lines all over the world serve at cost or near it, in order that the service may be as great as possible. It is the same with water, gas, electric light, street-railways, and other industries in which both public and private managements have been tried. Every- where private monopoly aims at dividends for stockholders, while public ownership aims at service for all. A normal public institution aims at the public good, while a normal private monopoly aims at private profit. It serves public interest also, but such service is incidental, and not the primary purpose. It serves the public interest so far as it runs along in the same direction and is linked with private profit, but when the public interest departs from or runs counter to the interests owning or controlling the systems, then the public interests have to take a back seat. And not merely is the aim of private monopoly material wealth, subordinating the higher ele- ments of wealth and even disregarding them, but the aim is material wealth for the few, not for all; and still further, the aim is material wealth for the few now. A private monopoly ordinarily cannot expend money and develop a great system of transportation, looking for its pay in the next decade, or through the collateral development of other industries and of the country as a whole, but it must have its profit now; the stockholders and bondholders want their dividends and interest, and they want them immediately. Public ownership, on the other hand, under normal con- ditions can and does aim first at the public good, making profit and material wealth a subordinate, incidental matter. And so far as it deals with material wealth on the financial plane, public ownership aims at wealth for all and not for the few, and due regard is paid to the future and to the collateral development of other industries and of the country. Private roads in a wide-awake country of high mechanical develop- ment may have better stations, tracks, cars, locomotives, speed, safety appliances, etc., than public roads in a less progressive country; but the roads of the wide-awake country are still more superior to the private The Aim. 403 roads of the non-progressive country. When we eliminate differences of race and mechanical development by comparing the results of public and private management in the same country we find an overwhelming mass of evidence to the effect that public management aims at and secures better service than private management in the same locality. In Germany, Austria, Switzerland, Belgium, Denmark, Sweden, Aus- tralia and New Zealand, as fast as the railways have been transferred from private to public control a marked improvement of service, exten- sion of facilities, and lowering of rates, have taken place. And the movement has not been a mere drift, nor the effect of popular pressure on an unresisting management, but the result of a conscious, vigorous aim, a clearly defined and systematic poHcy. The first question I put to Minister Heinrich Ritter von Wittek, the head of the Austrian railways, after the formal greetings were over, was this : "What is the fundamental aim and purpose of your ministry in the management of the State railways?" "To secure the best possible service at reasonable cost," he replied without a moment's hesitation. Similar answers in varying phrase were given me by the heads of public systems in other lands. When I returned to this country I put the same question to the president of one ot the greatest railway systems in this country. "What is the fundamental aim and purpose of the private railway managements of America?" And he answered with the utmost candor and directness : "To get traffic at rates that will pay something." There you have it crisp and clear; not traffic that will develop the country, stimulate industry, equalize wealth, aid education, empty the tenements and slums into suburban homes and rural settlements, in- crease the attractions of country life so that our boys may stay on the farms, accord to merchants and business men fair rates and equal transportation rights — not traffic that is just, impartial, and public- spirited — ^that's not the aim, but traffic that will PAY; profit versus service; this is the vital contrast between normal private and public enterprise. In regard to this difference of aim which appears to be the funda- mental distinction between the two systems, public ownership and pri- vate monopoly, I would like to quote a passage from a speech of Bis- marck, and another from the argument of the Prussian Cabinet, at the time they were considering the change from private ownership to a complete system of public railways in Germany. On April 26, 1876, in a speech in the Prussian Parliament advocating the consolidation of railways under Government control and owner- ship, Bismarck used the following words. He was comparing the rail- ways in Germany which were public property and operated by the 404 The Railways, the Trusts, and the People. States, with the systems that were still private. He said in regard to the State railways : "They serve chiefly the public interests of traffic, of commerce, of the circulation and transport of commodities and passengers; besides, as a secondary consideration, they aid the public treasury." Please notice how distinctly he places the money question second. First, he said, "They serve the public interests of traffic, of commerce, of circulation," and afterwards he notes as a subordinate matter, "as a secondary consideration, they aid the public treasury." Then he continues : "And in all events promote only public interests. It is the misfortune of private railways that a privilege granted by the State, and a privilege that could not be made use of without the help of the State — we may say a monopoly granted by the Government —should be legally exploited in behalf of private interests and private pockets." Bismarck, one of the greatest minds and one of the greatest states- men that ever lived, stated in this speech, as clearly as it would be possible to state it, the vital difference between the two systems. Let me turn again to that great document, the argument of the Prussian Cabinet, sent by them to the Reichstag in 1879 along with the bill providing for the absorption of the private railways, the transfer of them to the State. The argument for nationalization of the railways is concentrated on two great points. First, the benefits, economies, etc., that would result from the consolidation of the system under a single general management, and, second, "direct attention by the Government to public interests, which do not permanently find sufficient furtherance and protection where the railroads are in the hands of private corpora- tions whose object is gain." There again we see that fundamental dis- tinction clearly drawn and emphasized as one of the two vital reasons for the transfer of the railways. Long before these arguments of Bismarck and the Reichstag the German Handelstag, representing the United Chambers of Commerce, petitioned for State ownership of railways in the interests of commerce, making the difference of aim of public and private roads one of the main grounds of their petition, as we have seen in the preceding chapter. Everywhere in Europe I was told that the German roads are the best managed in the old world. They are also the closest to the people ; and in fact the most democratic in actual management, owing to the constant consultation of the railway managers with and the effective in- fluence of the popular bodies representing the various interests of the communities. As stated in Chapter XXIIL my own observations abun- dantly confirm these conclusions, and as close seconds in reference to the matter under discussion, I would name the state roads of Swit- zerland, Austria, Denmark and Belgium, where the management has but one aim — the public good. One of the main points in the argument sent out to the people by the Federal Council of Switzerland in 1897 when the proposed taking over The Aim. 405 of the railroads of Switzerland to the State was being considered, re- lated to this same matter — that the transfer of the railroads to the State meant that they would be administered primarily for the public interest and not for the mere financial benefit of a small class of owners; that a public system would aim at advantage to the whole people, while pri- vate companies look mainly to the advantage of the stockholders or a small part of the people; and that a public system aims not only at the benefit of the whole people instead of a part, but at the benefit of the people in the higher sense as well as in the commercial sense — the public good — not merely on the financial plane, but on political, social, and ethical planes also. A little quotation from a discussion of the vote of the people in Switzerland after they overwhelmingly adopted the measure for making the railroads public, shows how the Swiss people looked at this matter. It is a summary made by Horace Micheli in Appleton's Popular Science Monthly for September, 1898, in which he says : "The majority of the electors evidently regarded the railroads as a public service of the same kind as the postoffice, telegraph, etc., and sought to remove all private influences and sense of personal benefit from their management." The mere fact of changing the aim may not make the administra- tion perfect, of course, but nevertheless, as these high authorities have recognized, it is of the greatest importance to change the aim. With equally good management and equally good intentions in those who have control, the aim makes all the difference in the world. If they aim at private profit, good management will get it; if they aim at public good and the higher wealth, good management will get that. While I was studying the transportation systems of the old world, the railways of Switzerland were being transferred to public owner- ship and operation in consequence of the referendum vote of the people to that effect, and the Government had adopted the policy of lowering rates and improving service as fast as the lines were made over; and more important still, perhaps, it had been decided that the railway capitahzation should) be progressively reduced so that in a few decades passenger and freight rates shall fall to the operating cost or near it, and the burdens of transportation rest very lightly on the people and the business interests of the republic. Perhaps I have sufficiently enforced the statement that public systems consciously aim at the public good and the higher wealth as superior to questions of mere financial gain; but there is plenty more evidence on the point, some of it most interesting and instructive, and a few further items may be useful here. The fundamental aim of the Belgian State railway management is stated as follows: "The guiding principle has been, while keeping a strict eye upon expenditure and maintaining the financial equilibrium, the railways should be used for the general national welfare, both by 4o6 The Railroad Problem. ' ' the extension of railway transport to increasing numbers of the popula- tion and by cheapening it to all." When the Government of Hungary changed in 1889 from the old system of tariff to what is called the zone system, they gave their reasons for the change, and among all those reasons stated by the Government there is not one word about profit or financial gain in any way. The reasons are the facilitation of communication, the develop- ment of the country, the consolidation of the country politically by creating better communication among the people, breaking down preju- dices and antagonisms by fuller intercourse, the development of civili- zation through the educational value of communication — "it was essen- tial to consider the great economic and civilizing effects of such a re- form," said the Government. Where is the private railway manage- ment that has reduced rates 40 to 80 percent for the sake of the civilizing effects of easy communication? To reduce rates and facilitate inter- course, and to do this by a system which, while inducing a large in- crease of traMc, would admit of great simplicity in its management, "so reducing the cost to the lowest practicable limit, the aim being to de- mand of the country the smallest financial sacrifices possible, and yet to inaugurate upon the Government railroads a radical reduction of rates" by "methods which would place the offered reductions within the reach of ail, and adapt them to the requirements of all ranks and classes of the entire population," thereby securing "the great economic and civilizing effects" and other benefits above mentioned; such was the purpose of the Government railway management in Hungary. Social, political, and educational benefits supply the dominant motives ; and so far was the State from subjection to the money motive that it was ready to make "financial sacrifices" in order to use the railroads for higher interests ; seeking, however, with due regard to material economy, to make financial sacrifices as small as possible. This noble railroad policy was rewarded, as we have seen, not only by large attainment of the benefits sought by the Government, but by such an astonishing growth of business and simplification of management that, instead of the financial sacrifices expected by the Government, the net receipts were enlarged by the change. In Austraha also the principle of public service rather than pecu- niary profit is recognized as part of the basis of public ownership and operation of the railroads and tramways. In New South Wales for example, where the railroads and trams are public property, the head of the railroad commission says: "We do not run the roads to make money, but for the convenience of the public and the good of man." It is the human element they are considering chiefly, and not the financial. It is said that the Australian railways could probably be sold for more than enough to pay the whole state and national indebtedness, but the people would not listen to any proposition of sale, beheving firmly that the railways should not be handled as machines for making private profit and carving fortunes out of public traffic and resources, but The Aim. 407 should be managed in the public interest, administered to open up and develop the resources of the states, aid the material and social progress of the Commonwealth and assist in the diffusion of wealth, labor, edu- cation, civilization, and the establishment of justice. So in New Zealand, one of the strongest illustrations of all, Premier Seddon, the Minister of Railways, Cadman, and his successor. Sir Joseph Ward, have all definitely announced it as their settled policy, the settled policy of the State, to run the railroads in the interest of the public, to develop the country, to help labor, to encourage educa- tion, entirely subordinating questions of financial gain, and, in so far as they do consider material wealth, they consider it chiefly in the way of collateral benefits through the development of farms and factories and the growth of business throughout the country. They understand that every dollar spent in wise railroad construction means $5 at least added to the value of land, and they take care that the State shall re- ceive that value by keeping the land along the railways in the govern- ment's control as far as possible to keep speculators from securing the values the railroads create. They know also that the development of the railway system means the development of commerce and industry, and that the indirect results even to the public treasury, without con- sidering the higher benefits, will be ample remuneration for all they spend on the railroad system. The Rt. Honorable Richard J. Seddon, Prime Minister of New Zealand, says : "It is my idea that the railroads are the servants of the people, and that they should be run entirely in their interest. We want to bring every farmer's product to the markets at the lowest possible cost. If we can build railroads so that the man 100 miles from the seashore can send his produce to the ship at the same cost as the man who lives only ten miles away, we raise the value of the first man's land to that of the second. Nearly all the roads are making money, but there is no incentive to give anything else but the best service at the lowest possible cost." There it is again: the best service at lowest cost — finance not neg- lected but considered second, not first, and considered with reference to economy of the people's money, not with reference to getting the utmost possible profits out of the people for the stockholders. In pursuance of this principle it has been announced as the definite policy of the Government that all profits above the 3 percent needed for interest on the railway debt shall be returned to the people in lower rates and better accommodations. The astonishing reductions and im- provements that have been made prove beyond question the sincerity and vigor of the said policy. Nothing in this book, we believe, is of more vital moment than the difference of aim between public and private railways. A high purpose transforms a man, and the same is true of an institution, which is in fact but the tangible representation or 4o8 The Railways, the Trusts, and the People. visible embodiment of the great purposes that control the men who manage it. Chapter XXV. CONTRASTS IN GENERAL POLICY. From beginning to end there is a fundamental difiference in the policies and methods of public and private railways. In location, construction, capitalization, management, rate-making, treatment of employees, relations to political and industrial development, the distribution of wealth and power, economy, safety, progress, etc., etc., the contrast is vivid and instructive. The first three items will be briefly dealt with in this chapter. Location for Profit or the Public Good. The first question in railway building is, Where? The ques- tion contains political, economic and social elements as well as engineering elements. And it is with the non-mechanical ■elements that we are chiefly concerned, since it is in respect to them that the most important contrasts under this head are manifested. Railways may be located with a view to public or private interest; with reference to the good of the community as a whole, or with reference to the profit of a few promoters and stockholders. To some extent the results of these two methods coincide, for up to a certain point public interest and private profit go hand in hand; but later they diverge, and the total results of the two methods of location differ as much as the speech of a statesman differs from that of a corporation attorney. In laying out the original lines between the chief centers of population, the company surveyor follows substantially the same course as the public engineer; but when it comes, first, to the duplication or multiplication of roads between competing points, and, second, to the building of railways in thinly settled districts off the main lines of travel between the cities, the company policy is directly opposed to public policy. Contrasts in General Policy. 409 Experience shows that if the railways of a country are laid down by an intelligent, central authority acting in the putilic interest, the plan will be, first, to build trunk lines between the big cities, sufficient, but not more than sufficient, to handle properly the maximum interurban traffic; and, second, to fur- nish the country districts also with transportation facilities so far as reasonably possible. The railway system will be operated as one harmonious whole, with moderate rates for all, the profits on the trunk lines covering the possible losses in the sparsely settled areas, just as the revenue from the city mails helps us to pay for the rural post and the free delivery to the farmer. If, on the contrary, the railways are built on company plans there will be no roads in districts where profit is not probable,^ while competing points will be loaded with superfluous lines. As railway prosperity is proportioned to the square of the population served by it,° it is evident that a management aiming at profit is not likely to give thinly settled country districts their fair share of attention. Only a public or co- operative management can build lines at a manifest loss in order to develop the country and establish new currents of traffic in the next decade. The stock company must stick to lines of present or immediate prospective profit. And it is equally clear that there will be a contest to secure the city traffic. A company constructs an ample and efficient railway between two cities. It secures large profits. Private capital asks for a chance to capture a part of these profits by means of a competing railroad. Public interest demands, not the building of a new railway beside the old one which is fully able to take care of the traffic, but the reduction and regulation of rates under legislative authority, and the location of new (}) Mistakes may be made. Roads may be built where the expectation of profit is not fulfilled. But private capital does not go where it knows there is no profit in sight. It does not manifest any such unmonetary love of public ser- vice as that, except in the case of philanthropic institutions, and railways are not built on philanthropic lines. For private capital knowingly to build a road beyond the field of profit would be charity (if the capital was really private and not funds rightly belonging to the people). But when the public builds such a road it is not benevolence, but business — the nation uses its own funds for its own benefit, to develop its resources and stimulate its industries. (') VV'ellington's Economic Theory of Railway Location,' paragraphs 959, 072 079 This leading authority also shows that first-class financial results re- quire a big city or large traffic point at each end of the line. (Ibid. Page 731.) 410 The Railroad Problem. lines in less populous districts. The legislature/ however, tho elected by the people to serve the people's interests, instead of requiring the reduction of rates to a fair level and planning to secure the rural railway, frequently grants the parallel charter that private capital asks for, and millions of money are wasted in the useless multiplication of railway facilities where they are already sufficient, while regions that need them are left still unsupplied. The railway maps evolved by these two processes present remarkable contrasts; plan, order, co-ordination, adaptation, diffusion of facilities on the one hand ; chaos, conflict, conges- tion of facilities alternating with their absence on the other hand. The public map depicts a railway system such as an engi- neer would plan to serve and develop the whole country, and make the outlay count as much as possible for the public benefit. The company map shows a planless mass of roadways built for profit, swarming about the cities, struggling for their traffic, cutting rates between the big centers while keeping them high for other points, focussing trade in the giant cities, and foster- ing much that is most inimical to progress and civilization, wholly neglectful of the balance between rural and city interests to which the public transportation system gives so much atten- tion. The public plan aims at service ; the companies aim at profit.* Just to the extent that private profit has governed the location of railways, have the results overfavored the cities and under- favored the country ; while public location and intelligent public control of private location have tended toward a sane, sufficient, and economical railway development. Belgium, Germany, and the Anglo-Saxon colonies of Aus- tralia, offer the best examples of public railway maps, while (3) For many years in this country as in England legislators had unbounded confidence in the eificacy of private competition even in the railway field, and seemingly retained this confidence in spite of repeated proofs of the truth of Stephenson's early dictum: "Where combination is possible, competition is impos- sible." Many legislators also saw opportunities for personal advantage in con- nection with the railway companies whose charters they were asked to pass, visions that were often made quite vivid by the railroad lobbyists, or by special relationships with the company. Even the best legislators have often been too busy and too little acquainted with the broad scientific, economic, and social aspects of the subject to have any adequate conception of a true railway policy. (*) A combination of the two methods produces intermediate results. The state may prevent unwise duplications by refusing to charter parallel lines, and may exercise a determining influence upon the location of all private lines, but it cannot easily secure due transportation facilities in the sparser districts except by the employment of public funds, or of the public credit in the shape of a gujirantee of reasonable profit to the company. Contrasts in General Policy. 411 England and the United States supply the leading cases of the dominance of private influence. I have had these countries and many others in mind in writing the above paragraphs, general- izing from the whole history of railway location. France, in her private railways, laid out in large measure according to a public plan, affords a fine opportunity to study the effects of a pretty even mixture of private profit and public control. These forces are mingled in the railway history of almost every country, but France is peculiar in the fact that neither influence has the great preponderance that attaches to one or the other in most countries. England started with unbounded faith in private enterprise. It was easy to see that private interest was in many respects at variance with public interest, yet she expected it to work out in harmony with public interest; as tho a current moving northeast could carry a craft due east. The railways constructed in the first age, 1825 to 1840 (the rage for railroad building running high for several years in the thirties), constituted a patchwork of uncoordinated bits, not in accord with any well-digested plan. This first batch of rail- ways was free, however, from serious duplications. Not so with the next batch. The failure to secure reasonable rates by regulative statutes led to the vigorous regime of building parallel competing lines that characterized the second railway age in England, beginning about 1840. By 1844 railway building once more reached the fever state, and the epidemic that time was full of the virus of the double and triple railway delusion. The result was waste of capital and ultimate increase of rates. The effect upon rates is well illustrated by the reply of a leading railway official. Sir R. Moon, to a deputation from South Staffordshire: "When the London and Northwestern was the only railway to Liverpool we carried your iron at 25 percent less ; now you have three railways and must pay for them." The private railway builders made the map of England look like a nest of crawling serpents, a character it retains to this day in marked degree. 412 The Railways, the Trusts, and the People. A British railway map, showing the 250 systems in different colors, is a picture of planlessness, confusion and chaos that could not be exceeded by a country full of snakes of all sizes and colors, wriggling and twisting over each other in an inex- tricable tangle. The direct waste of money in legal expenses and cost of construction of needless lines, and in other errors of planless railway building, has been estimated at one-fifth to one-third of the total railway capital ; and besides these hun- dreds of millions of direct waste and the overloaded capitaliza- tion they entail, we must not forget the incalculable indirect losses' in economy and development due to the lack of any scientific system of locating railroads, the excess of railway mileage in crowded districts and poor accommodation for agricultural areas, the comparative inefficiency of the chaotic network of ill co-ordinated tracks, the pettiness and cumbrous- ness of a railway system laid out at private whim in little bits, wandering wherever a profit might be hoped for, instead of a strong, harmonious system of direct lines with well planned rural adjuncts such as would be laid out by first-class engineers planning the whole railroad system for the public service.' In vivid contrast with the history of haphazard railway building in England is the Belgian story of scientific location of railways upon a comprehensive plan drawn up with reference to the national welfare. Thinking the railways, like the postal service, of too much moment to the whole people to be left to the private control of a small body of stockholders and mana- (*) As an illustration of the indirect losses entailed by competitive building of railways, take the following from Mr. Acworth: "It has been mournfully acknowl- edged over and over again, by railway men themselves, that the competition in express trains — say, between London and Manchester, or Manchester and Liver- pool — ie extravagant. A third of the^ number of trains could carry the whole of the traffic, and even then give a service sufficiently frequent to deprive the public of any right to grumble." C) An English writer on railways says: "The initial mistake with the rail- ways was in disregarding their systematic distribution with reference to the whole country. The only power that could have attempted this was, as in France, the State; but all through, from the beginning, the State has abrogated this function. Left to themselves, promoters selected the districts likely to pay best, and hence there are duplicate and triplicate lines between the same places, while less promising districts were neglected. Accident has determined what railways we should have and where they should be. It was not so much its merits that called a line into existence as the vigor of its promoters; and its fate has been dependent on the length of their purses, the more or less persuasive tongues of advocates, for and against, and the chances of who was on the committee that considered it." Speaking of the United States the same writer says: "No doubt if America had taken the construction and control of its railways in hand from the first, placed them on a system avoiding competing lines, and constructing them as fast as the exigencies of population demanded, the vast sums she has expended in making them would surely have shown better results than those she has experi- enced." Contrasts in General Policy. 413 gers seeking their own profit, Belgium decided to own and op- erate a first-class system of railways on her own account. And in order that the lines might be laid out and constructed from the start in the best and most farsighted way, George Stephen- son, the leading railway expert of the world in the thirties, was engaged to draw the plans. The Government chose the main lines of traffic for its earliest lines ; from Antwerp on the North to the iron and coal regions in the South ; from Liege, near the German frontier, to Ostend, the best point for shipment to England and receipt of English trade, etc. After the principal routes were occupied by State lines, private companies were allowed to build branches, con- nections, extensions, and co-ordinate systems.' Before me is a large map of the Belgian railways given me by the Belgian Government. The State lines are in one color, and each com- pany line is in a color of its own. The comparative unity, harmony, order, adaptation, careful planning manifested in this map naturally evoke the expression, national railway system. Undue congestion in populous areas and paucity in the out districts have both been avoided. The United States followed the English method of haphaz- ard competitive building, with chaotic results even more serious than those recorded in Great Britain. From 1830 to 1905 some 5000 railroad companies have been incorporated, each to build and operate a bit of road for its own private benefit, uncoordinated with any comprehensive, far-seeing plan, and in many cases duplicating a line already more than equal to the traffic in its territory, wasting industrial power, saddling the country with an overweight of railway capital, and preventing reductions of rates which might otherwise have been possible. For instance, the "Nickel Plate" from Buffalo to Chicago, was planned to parallel the Lake Shore and cut out a slice of its profit. Passengers on the Lake Shore were paying 3 cents a mile. When the Nickel was projected these passengers rubbed their hands in glee and said "Now we shall have low fares." But the result did not justify (') The system as originally planned was practically complete in 1850. In the next twenty years most of the railway building was done by companies under concessions granting locations some of which brought the roads into competition with State lines. Even in this concession period, tho less care and foresight were exercised in locating lines than was the case in the first period of State building, yet nothing like the English haphazard building, needless duplications and chaotic intertwining of mazes, of struggling rivals, was permitted. The lines were laid out with reference to national interests and with a view to purchase and operation by the State, along with the lines constructed by it as one harmonious system. In the third period, beginning in 1870, this was accomplished. 414 The Railroad Problem. their confidence in competition. "Fares were not reduced. The Nickel was absorbed by the Lake Shore. Speculators and construction com- panies put money in their pockets, but the country was poorer by the enormous waste of natural resources. The capital and fixed charges of the Lake Shore were increased, and a reduction on which the Legis- lature might before have insisted would afterward have bankrupted the road." ' When the West Shore Road was built to parallel the New York Central and Hudson River Railway similar results were reached by a slightly different process. A railroad war broke out and passenger fares fell to half the former rates for a short time." ' But the West Shore was beaten, and leased its lines to the Central tor 499 years, rates were restored to the old level, and the enlargement of railway capital raised a new barrier to reductions formerly practicable. It is estimated that duplicate competition wasted 200 miUions in these two attempts alone, a waste of resources sufficient to build homes for 200,000 families or 1,000,000 people, or to build 7000 miles of railway in country districts where they were needed. Prof. R. T. Ely says: "It is a very moderate estimate to place the amount wasted in the construction of useless railroads at 1000 mil- lions." " A billion dollars wasted (much of it worse than wasted, tied round the neck of traffic, a burden upon industry for decades) and a railway "system" the larger part of which was laid out, like the streets of older Boston, without any system at all, by a disjointed individualistic method entirely innocent of any broad principles or considerations of ultimate utility or public convenience beyond those involved in the problem of getting from one end to the other of the particular highway in question at the time. («) Prof. R. T. Ely in "Problems of Today." Page 140. (*) Competition has reduced rates permanently at certain points, but reduc- tions of permanent character have come from the competition of railways occupy- ing largely independent fields rather than from the competition of needless dupli- cations. A temporary lowering of the tariff may result from the conflict of duplicates, but hardly a lasting reduction; and if it did, the result would be achieved in the most cumbrous and costly way instead of the simplest and cheapest way. (^") The tendency to duplication and triplication, not merely of the great trunk routes, but even of the smaller roadways, wherever the profit is enough to tempt competition, is strongly set forth in the following passage from Hudson: "The building of superfluous railways is illustrated by the example of the rail- ways carrying freight from Pittsburg to Lake EJrie and the West. For forty miles three railways run side by side, through the Beaver and. Mahoning valleys, and for fifteen miles of that distance a fourth weak and unimportant line is added. At no point in the forty miles are these tracks a mile apart. For nearly as great a distance the three principal lines run to Pittsburg, in a strip of country from five to fifteen miles in width, and for sixty miles farther, to the southeast, connecting railways, practically parallel, share the coal and coke traffic of south- western Pennsylvania. Thus, for one hundred and forty miles, three railways run side by side, sharing the same traffic, offering virtually the same service, and in times of depression destroying each other's profits. The construction of two of these lines was the only escape from exactions of the monopoly of transportation in these regions twelve years ago. But they represent a vast waste _ of capital and labor. . . . It is an injustice and wrong that labor and capital should be sunk in the construction of two or three railways, where all the service they render could be had from one under proper conditions." Contrasts in General Policy. 415 We must not lose sight, however, of the fact that much good railway building has been done in the United States both from the private and the public standpoints." The Pacific lines were planned with great breadth and foresight. They were prac- tically planned as Government roads. The plans were drawn in such a way as to make the roads so manifestly and so deeply important to the whole nation that Congress would supply the means for their construction. Some of the great trunk lines of the East are also to be classed as having excellent locations. Pieces of the original patchwork in iron have been welded together in coherent, well-planned railways. The Pennsylvania, for example, and the New York Central have grown to be magnificent systems," probably the finest roads in the world C"^) In many respects, as we have said, public and private railway building are at one. Both public and private engineers seek to avoid bad gradients and curvatures. Curvature in a railroad is almost as bad as curvature in a spine. And high grades have a disastrous effect on speed and expenses. Both public and private systems must connect the large cities, and the first roads between such points are likely to be laid out in much the same way in either case. It is in the rural roads, in the later city railways, and in the lack of co-ordination of the original lines, that the private regime differs from the public. (") Of the hundreds of little roads that have been merged in these giant systems, many were fairly well located, so that their consolidation has resulted in trunk lines nearly as efficient as if they had been originally laid down on trunk route plans instead of growing out of local plants. The Pennsylvania was origi- nally projected to bring traffic from the West to Philadelphia; but it chanced to lie in a most favorable position for a short low grade line between New York and the West, and the natural gravitation toward the profit to be derived from connecting great centers led to the absorption of New York & Washington lines and a branching network of lines from Pittsburg through the West. The New York Central is not so favorably located for a through line. Its greater length reduces its average receipts per mile on competitive traffic considerably below those of the Pennsylvania, and the water ways competing with it for the whole distance from New York to Chicago have still further reduced its receipts from low class traffic. But its local traffic is immense. It connects a magnificent string of towns, and its grades are very easy (said to be the most favorable in the world for a line of such length) which gives it an overwhelming advantage, espe- cially in handling heavy freight. Its immense local business, on which it has a practical monopoly, is alone sufficient to support all the staff and plant of a great railway, so that it can, whenever necessary, handle its through traffic as so much extra business, the only expense that need be charged against it being the direct outgo for wages and fuel and a small amount for wear and tear of plant — track, rolling stock, etc. . It must not be imagined, however, that even in these exceptional cases nothing was lost by piecemeal, planless construction. Some roads that have been made by tacking bits together, are superior to some others that were laid out on trunk route plans by projectors and engineers of second or third rate ability, as in case of the West Shore, for example; but the best of the welded roads could have been better built and at lower cost under broad plans drawn up by first-class engineers. Take for instance the cost and difficulty of uniting in each division, city, and town, the tracks and stations of the western and eastern links. As a rule each of the old local lines had its own termini, and the terminus of the line coming in from the West was apt to be across the city from the terminus of the eastern line; whereas, if the trunk road had been built as a whole, or in pieces under a com- prehensive, farsighted plan, there would have been but one station at the start, and the tracks would have gone right through. So with the various railways diverging from a city; the enormous cost ot changing tracks and stations to focus traffic in a Union depot could have been in large part avoided by a little planning and public control at the start, or years ago when it became evident that the railroad was to be one of the leading factors in our industrial development. In Boston, for example, the Boston & Albany, the New England, the New York, New Haven & Hartford, and the. Providence line each cut a path through the city, devastating wide areas with their tracks, smoke, noise, etc., and each built a station in a different part of the town. The lay-out 4i6 The Railways, the Trusts, and the People. from the material standpoint — political, social, and industrial effects aside. Ours is a country of tremendous contrasts. No- where are more skilfully located railways to be found than some of ours. Nowhere has so much money been wasted in erroneous, ill-planned construction. Nowhere has private in- terest been let to run so wild a course. Nowhere has so little effective effort been made to control railway building and man- agement for the public good. My elbows rest as I write upon Grant's Railroad Atlas for 1891. Let us turn to the State of Maine. There are 18 systems or lacks of systems, intermingled in first-class confusion, streaks of zig-zag light- ning cutting the country into all sorts of shapes, an inextricable tangle in all the colors of the rainbow. New Hampshire and Vermont follow suit. Massachusetts is worse yet; the map is almost as serpentine as that of England. New York shows 78 systems with plenty of writhing reptiles in the southwest; there is more directness between New York and Albany and Buffalo and on Long Island. New Jersey is very snaky. Pennsylvania presents a bedlam of 89 systems; if there were colors enough to give each system a different tint what a maze it would make! Georgia's 54 systems look like one of those labyrinth puzzles where it takes you half a day to find your way out from center to circumference; Ohio has 59 systems badly cut up; Michigan and In- diana, terrible tangles; Illinois — well, take a lot of strings of different lengths and 58 colors, snarl them up like the mass in a string bag that is no longer youthful, and then flatten out the snarly mass on the table and you'll have a fair counterpart of the railway map of Illinois ; etc., etc. There has been much improvement in recent years through the consolidation and coordination of railway fragments, but no such process can atone for the want of scentific method in the original location of railways. The people have clustered about them and the country has grown to them, just as the muscles will grow in warped and erroneous shape about a dislocated or misplaced bone ; but that does not make the mis- placement in either case a good thing. Germany does not afford so good an example as Belgium of comprehensive planning in railway location, for two reasons: was so absolutely planless that the tracks of the Providence line crossed those of the Boston & Albany on the same level right in the city. At tremendous cost the terminals of these roads have been recently united in the big South Station. Some of the old depots and areas formerly covered with tracks lie unused. Be- sides the direct cost, it wiU be many years before Boston can heal the scars left by the old haphazard building; and it will be ages before it is as good a city in every way as it might have been if a little common sense, foresight, and public spirit had been exercised in the early planning of railway terminals. Contrasts in General Policy. 417 First, the states were not united till after the Franco-Prussian war of 1870, so that the railways of the several states were not laid out as coordinate parts of an imperial system. And, second, altho the southern states, Bavaria, Saxony, Wurtem- burg, Baden, etc., built well-planned systems in early years and for half a century have operated five-sixths or more of their railways, Prussia followed a very different method. The fact that so large a part of the railways of Germany were built before there was any Germany, i. e., before the twenty- four German States were united into a nation, together with the long devotion of Prussia to private railways, deprived the German railway map of some of the symmetry and balance it might have had if the German Union had been formed before the railway era, and if the roads had been laid out upon far- sighted, national plans. Nevertheless the distribution of rail- ways in Germany is comparatively free from the principal defects so prevalent in the laissez faire countries. There has never been in Germany anything like the reckless disregard of rational principles of construction that has marked railway his- tory in England and the United States. Social control has always been a large element in railway location, and this, together with the unity effected by state purchase and the crea- tion of the Empire, gives the German roads a very fair standing in the light of the principles we are considering. There are excellent through lines, little overconstruction or parallelism burdening transportation districts with unnecessary fixed charges, and an admirable development of railways in the rural districts in many portions of the country." France, like Belgium, adopted the idea of systematic location of railways on well-considered public plans. The very first thing the Assembly did was to appropriate money to pay the government engineers for laying out a general system of rail- way lines. The roads were laid out with the idea of avoiding all waste, and of providing an efficient, well-balanced, trans- (") Speaking of the work accomplished on this line by the South German States, Professor Hadley says: "They were strong enough financially to adopt the policy of State ownership and carry it out consistently. They actually succeeded in doing what so many of our country towns tried to do a few years ago by munici- pal subscription; that is, they secured railroad construction for the sake of local in- terests [or the service and development of the outlying, thinly populated districts] where mere business considerations would not have caused the railroads to be built. They thus obtained a remarkably uniform development of lines all over the country." "Railroad Transportation." Page 201. 4i8 The Railroad Problem. portation system. Each part stood in its proper relation to the whole. Parallel and competing lines were carefully guarded against, and an effort was made to provide due transportation facilities for the country districts. In later years competitive building was allowed, with the usual results. On the whole, the French plan of private railways, located, protected and regulated by the Government, has not produced a satisfactory distribution of transportation service. It has avoided the wastes of competitive building (except in the few years in the seventies when the general policy that characterizes French railroad history was not adhered to), and it has evolved a fine system of trunk lines radiating from Paris, but the co- ordination of these systems is certainly far inferior" to what would have resulted under a single State management uniting the whole into a single system as in Belgium, and the Provincial cities and towns do not possess the facilities to which they are fairly entitled. There should be strong lines running across the territory of the big railroad monopolies, and connecting Provincial centers with first-class trunk lines without going into Paris. The history of the French railways proves that private mo- nopolies cannot be depended on to give due attention to rural transportation even under stringent Government supervision. In Australia the chief defects have arisen from the division of the continent into separate states. As in the case of Ger- many, union came long after railway construction was far advanced, so that the railways of the Australian Common- wealth, looked at in the light of a continental system, do not exhibit the harmony and co-ordination that would probably have characterized an enlightened public construction if the federation had been earlier and the state had been under one government when the railway age began. It appears from experience as well as reason, therefore, that private interest develops a system largely at variance with public interest. Public control as it grows in force and intelli- gence can make the variations smaller and smaller, but can C*) As evidenced by the diversity of tariffs, etc., the widely scattered Parisian stations and the comparative difficulty of transferring business from one road to another in case of goods or passengers going across France, not starting or stopping in Paris. Contrasts in General Policy. 419 reduce them to zero only when it reaches its full strength in public building for the public service. Only the public itself can build a system in complete harmony with the public inter- est. The question is whether the railways shall be located in pursuit of private interest or for the public good ; for the profit of a few or for the benefit of all. It is a matter of great importance that railway construction should conform to social well-being. The distribution of rail- ways is a vital factor in the economic and social development of a country. It largely determines the distribution of energy, values, wealth. It decides the destinies of towns, cities, and districts; molds the relation of city and country; influences occupations, institutions, civilization, and affects directly and indirectly in many ways the life and character of the people. So potent an influence should never have been left to haphazard distribution or location by the profit impulse of a class, but should have been wisely used from first to last with sole regard to the public good. Construction. Railways may be built with public capital or private ; by direct employment or by contract; with economy or extravagance; honestly or by fraudulent practices. The tendencies of public and private influence under this head are rendered very clear by the history of railroad building in various countries. In Germany, Belgium, Denmark, and other countries where public railways have been built, construction has been charac- terized by honesty and efficiency of a high order. One must go to the history of private railway building, especially in the United States, to find the records of fraud and corruption that blacken the railroad history of the world. In former chapters we have shown how through construction rings and other frauds, hundreds of millions of dollars have been stolen from the people in the construction of private railways. In a number of instances, as we have seen in the case of roads of considerable length, the railway was a fraud from beginning to end. It was built for graft, was graft, and nothing but graft. Public lands and moneys have been devoted to railway build- ing in countries having private roads and in countries having 420 The Railways, the Trusts, and the People. public systems. The difference is that in the United States, tho enormous quantities of the people's land and money have been given to railway corporations, the people do not own a mile of the railways ; the private companies own them all ; while in many other countries where public land and money have been put into railroads the roads thus paid for have been kept as the property of the people. In Germany, Belgium, Holland, Denmark, Norway, Sweden, and the Australasian commonwealths, railways built with public capital are public property. These countries believe that when they invest the nation's money the investment should belong to the nation and not to a private company. In France, where public capital and credit mingled with private in the construc- tion of railways, the Government retained an interest and con- trol amounting to a substantial partnership in the roads. In Germany and Belgium also, the state interest in and control over private roads assisted or subsidized was quite sufficient to render any such assistance substantially a partnership investment. Other countries acted on the same principles in similar cases. But our country has given hundreds of millions of public property for the construction of railways, to be owned and con- trolled by private companies. The United States enjoys the distinction of having actually paid for the railways, or a large part of them, without owning, or exercising partnership rights over any railroad in the country. State and National govern- ments voted land and money to railway companies under the pressure of both public and private interests, and the power of the promoters to determine the location of these lines, stations, and workshops enabled them to extort additional aid in vast amounts from cities, towns and individuals along the proposed routes. In many cases they got from the people more than enough to build and equip the whole road — ^the people have really paid for it and yet it is the private property of a few stockholders. Capitalization. One of the most vital differences between public and private railways lies in the attitude of the two systems toward the ques- tion of capitalization. The policy of public railways is to capi- Contrasts in General Policy. 421 talize at cost, and afterward, so far as reasonably possible, to pay off the capital so as to eliminate partly or wholly the fixed charges due to capitalization/" The policy of the private rail- ways, on the contrary, is to capitalize far above cost at the start, and afterward, so far as may be possible, to widen the difference between capitalization and market values on the one hand and real investment on the other. The motives and causes for these radically different tenden- cies in respect to capitalization are very clear. Over-capitaliza- tion enables railway promoters and managers to reap enormous advantages. It gives them a power to absorb from the public in return for paper values far more than enough to cover the actual cost of the road. It provides a means of influencing legislation and controlling government through the persuasive force of gifts of stocks and bonds to state and national ofiicers and other influential men. It supplies the means of concealing profits from the public, and thereby increases the "earning capacity" or degree of taxation and extortion that will be tolerated by the people." It also constitutes a most effective weapon with which to combat any demand for lower rates or higher wages or fairer taxation of railroad property or im- (iB) -y^Q have noted already in Chapter XXIII the policy of government roads in relation to the retirement of interest-bearing capital. In no case so far as we know has a civilized government incurred the responsibility of burdening its railways with fixed charges upon a fictitious capitalization, and in every case the government either has established or plans to establish a sinking fund which will eventually obliterate the entire debt standing against the railway properties. We have spoken of Belgium, Germany, Switzerland, etc., in the chapter just named. For a fur- ther example take South Australia. The State borrowed funds for railway con- struction at 6 percent, s percent and 4 percent, up to a total of about $50,000,000. After paying this high interest the government has had a profit of about half a million a year to set aside for the redemption of these bonds. By 1920 the whole of the 6 and 5 percent bonds are expected to be retired, and there are persons liv- ing who may see the entire extinction of the railway debt of that country, not- withstanding the fact that extensions of line are made and must be made as the country grows. The system of private railway ownership means a permanent aad increasing capital with its perpetual demand for dividends and interest, while the system of public ownership means eventually that the cost of the railways will be paid off by the results of operation, and the railways become free agencies for public ser- vice at cost. (") For example, the Select Senate Committee on Transportation Routes to the Seaboard, 1874, estimated the overcapitalization of the Erie, Lake Shore and Michi- gan Southern, and the Pennsylvania and Fort Wayne at $195,000,000, on which the commerce of the country was forced to pay a dividend of 8 to 10 percent per annum. The committee assumed the cost of these roads to be $182,000,000, or about $78,000 a mile. The data of railway cost, on which they based their esti- mate, were taken from the reports of railway oificers and have since been shown to be far in excess of the real cost, so that high authorities now declare that the total excess of capital over the actual cost for the three roads was nearer $260,- 000,000 than $195,000,000. And all these millions of excess are simply so much leverage for extortion and resistance to regulation and to public purchase. If such roads were fairly capitalized, the profits would be so large in appearance as well as in fact that the people would demand reduction of rates, etc., with a vigor that would ensure action. The private monopolies know very well that their only safety lies in pulling wool over the people's eyes. 422 The Railroad Problem. provement of service. And next to the railroad control of our governments, it is the greatest barrier in the way of the estab- lishment of public ownership. Private railroad owners have, therefore, every motive to increase their capitalization to the highest practicable limit. Every consideration of self aggran- dizement and self protection makes for this inflation. All the force of desire for money and for power contributes to the establishment of the policy of increasing private railway capital to the highest limit. On the other hand the public railway management has strong reason to decrease the capitalization. The managers are the servants of the public. The public wants low rates and national prosperity, and this union in full development is possible only through the elimination, so far as possible, of capital charges. Honest dealing requires that capital shall not exceed the actual cost, and far-sighted industrial and political policy requires the gradual extinction of capital charges. The purpose of every well-ordered government is to pay its debts if possible when they mature, but the purpose of the private railway owners is to keep the railway capital debts in existence and increase them. An Indiana lawyer, now on the Federal bench but formerly the gen- eral attorney for one of the greatest railway corporations in the United States, once said to the president of the railroad that it was surprising to him that so great and prosperous a company as theirs should con- tinue to be burdened with so heavy a debt, and he suggested to the president that it would be wise to create a sinking fund to provide for its payment. "Pay off our bonded debt!" said the president. "Why, my dear sir, that is the one thing we are trying the hardest not to do." The injustice of overcapitalization is manifest. It is a most pernicious sort of imposition on the public, and its results in many cases are practically little short of actual robbery. It is overcapitalization more than anything else that enables the rail- ways to charge excessive rates. Whenever the reasonableness of a rate is called in question before a court or commission the entire capital of the railroad is taken into con- sideration." In the eyes of the court every bond is entitled to its inter- (") "Excessive capitalization tends to keep rates high. ... If returns from ex- cessive rates can be distributed in dividends on watered capital the public is not aroused to demand reductions. High capitalization, therefore, has at least an indi- rect bearing on rates. The amount of railroad capitalization is not to be regarded, as a matter of no concern to shippers." — Report of Ind. Com^, vol. XIX., pp. 410, 413. 414. 4IS. A contrary view, illustrating -what the railway promoters themselves say on this subject, is expressed by Mr. Sidney Dillon, ex-president of the Union Pacific, as Contrasts in General Policy. 423 est and every share of stock to its dividend, and any regulative action that would deny this is looked upon as confiscatory. And regardless of the question whether any given stocks and bonds represent a dollar of invested capital or not, they are surrounded with the halo of the sacredness of private property. A few thousand persons who have purchased or received as gifts securities which in their very issue were a fraud upon the public, have their paper rights protected without regard to the solid property rights of eighty millions of people who are compelled to pay exorbitant rates in order that the holders of inflated capital may have interest and dividends. Another grievous element in this injustice lies in its perma- nence. Many of our railway evils are of temporary and passing significance compared to this. Fictitious stocks and bonds once fastened on the railways have eternal life unless a court of insolvency intervenes, and even stocks and bonds that repre- sented solid values at their issue become fictitious by the extinc- tion of the properties. Rails and ties and rolling stock wear out, decay and vanish, but the stocks and bonds remain. Capi- tal dies but is not buried; securities far outlast the physical assets they represent, and through failure to write off proper follows: "As a matter of reason and principle, the question of capitalization con- cerns the stockholders, and the stockholders only. A citizen, simply as a citizen, commits an impertinence when he questions the right of any corporation to capi- talize its properties at any sum whatever." — North American Review, April, 1891, p. 446. It is plain that those stocks and bonds that actually receive hundreds of mil- lions a year in dividends and interest are not as potent in maintaining high rates as are those stocks and bonds that receive nothing. Railway financiers seem to understand this fact. The railways claim that they have a right to capitalize on the basis of their earning capacity, but this is reasoning in a vicious circle. They justify their over- capitalization by their earning power, and if their earnings are called in question in an effort to reduce the rates to a fair margin on actual investment they justify their rates, that is, their earning capacity, by appealing to their capitalization, so overcapitalization is based on earning capacity, and earning capacity is based on overcapitalization. . Speaking of this theory of capitalization based on earning capacity, the United States Industrial Commission truly says (vol. XIX., p. 409) : "Capitalization on this basis enables a road to conceal the extent of its profits and to absorb increas- ing revenue without incurring public displeasure and arousing agitation for lower rates." Railroad men stoutly defend this method. "If you know what a road s gross earnings are likely to be, you know what its capitalization is going to be. . . . Earning capacity is the final test of capitalization. As earning capacity grows, the tendency is for capitalization to grow with it. ... I do not think the oripnal cost of the railroad has got anything whatever to do with reasonable rates.' (Testi- mony of T. F. Woodlock, Railway Editor Wall Street Journal, Ind. Com. IX. 4S7-) it gives the railway magnates great paper wealth, makes their property seem very valuable, enables them to secure exorbitant incomes, and "obscures the relations between rates, wages and profits." It is contrary .to every principle of fair play between the corporations and the public, and the limits to its rapaciousness are not reached even when the earnings are exhausted. . . The Railway Commission of Michigan fixes the value of railroad properties by taking into consideration both the cost of reproduction and the fair earning capacity of the railroad, and arrives at an average figure of $21,486 per mile for the railroads in that state. It is evident that the Michigan Commission does not figure the "earning capacity" in the railway sense which includes the "earnings due to the monopoly element or power of taxation, capture, or extortion. The Industrial Com- mission gives the Michigan method its endorsement and approval, and a similar en- dorsement has been given to it by railway commissioners and others of authority. , 424 The Railways, the Trusts, and the People. depreciation the companies pile up their capitaHzation decade after decade to keep the people paying interest and dividends on the worn-out cars and road-ways from the start, with all the watered values they can safely inject in addition. In comparing the railway capital of different countries it must be remembered that no fair inferences can be drawn with- out studying the special circumstances of each case. The $40,000 capitalization per mile of the state railways of Sweden against the $63,000 capitalization of the private railways of the United States does not prove anything in favor of public ownership any more than a comparison of our $63,000 per mile with the Belgian $157,000 proves anything in favor of private ownership. Belgium is the most densely populated country on earth, and the trackage, buildings, rolling stock, etc., per mile of line increases rapidly with the density of pop- ulation and traffic. All over Europe west of Russia the railway lines are short compared with ours and have incurred therefore a high pro- portion of expense for terminals, equipments, etc., to a low proportion of mileage. In some of our Eastern states where the density of settle- ment approaches the European level, railway capitalization rises far above the Belgian figure. The Erie, for example, is capitalized at $253,017 per mile; the Pennsylvania at $454,968; the New York Central and Hudson River Road at $367,016; the Reading at $653,846; and the Jersey Central at $793,221 per mile of line. If comparisons are available for proof without investigation of cir- cumstances we may bring vigorous evidence for public ownership by putting Germany's $97,000 per mile against England's $326,000; Vic- toria's $58,000 against Pennsylvania's $454,000; and Denmark's $46,000 against the Jersey Central's $793,000. And on the other hand we may get evidence the opposite way by comparing the Alton's $104,000 a mile with Belgium's $157,000, or the $63,000 average for the United States with Switzerland's $199,000. But the multiplicity of causes at work is so great as to absolutely invalidate every such comparison. The English capitalization, for ex- ample, while adulterated with water, and infected with fiction to some extent, owes much of its corpulency to extraordinary actual cost. It is true that big legislative expenses account for part of the capital, that stocks were given to influential men to secure their names on boards of direction, etc., and that large wastes were incurred in getting the funds required for the roads. Out of the whole capital of the London, Chat- ham and Dover Line in 1865, amounting to £16,683,000, not less than £4,109,000 was admitted to have been dissipated in obtaining the rest from the public, and £1,948,000 more was disbursed out of capital for payment of interest and dividends. But, without any such inflations, the heavy cost of land and terminals,'" the dense traffic, large trackage (") Jeans has shown in his "Railway Problems" (Longmans, Green & Co., Lon- don) how vast has been the expenditure for land in England, and for termini in the Contrasts in General Policy. 425 and equipment per mile, numerous and expensive stations, abolition of grade crossings, etc., would still make English railway capital the high- est in Europe, and, taking national averages, the highest in the world. Here is a table of capitalizations which the careful reader cannot fail to find interesting : -. . , _ Private Roads. Government Roads. United States $63,186-' Sweden $40,420 •England 320,000. Belgium IS7 7=;'! United Kingdom 267,000 . Denmark ] 46'ooo France 135,000- Germany Q7'iS'i Pennsylvania 454,968 - Austria q? goi Central New England 251,736 Switzerland^' rlq 41:6 Central Pacific 148,226 Russia 77821- Reading 653,846 - New South Wales 62,660 New York Central & Hudson. . . 367,016- Victoria 58,540 E"e 253,017 New Zealand '. 43^000 New Jersey Central 793,221 Queensland 40,000 No fair inference can be drawn by comparing the capitali- zation in one country with the capitaHzation in another, because a national average gives no conception of the facts behind it. A mile of railway in New York City might cost a million dol- lars, while thousands of miles on the Western prairies might be built for $10,000 a mile. And the investment really made by the security holders may equal loo percent of the cost or 50 percent, or 10 percent, or no percent. With railway capitaliza- tions running from $793,000 a mile for the Jersey Central, and $653,000 a mile for the Reading,^" down to $10,000 or $20,000 in some little country roads, it is clear that a national average means very little.^ tig cities, large amounts have also been spent by the railways for the purchase of steamer lines and canals to shut off competition. The land cost alone on some of the great lines amounts to $30,000 per mile. The trackage is more than double the length of line, and the tracks are thoroughly "ballasted. The block system is in almost universal use. Grade crossings are prac- tically done away with. Stations are located close together and many of them are handsome stone structures. Commissioner Clements said to the Senate Committee (1905, page 3227): "We have about one-third of a mile extra track or siding for each mile of route. Eng- land has 20,000 miles of route, but 50,000 miles of track, or 2j^ miles for each single track mile. Their roads are far better ballasted and policed; their buildings are all substantial brick or stone, while most of ours are cheap frame; their term- inals are far more expensive in proportion to their shorter lines, and the equip- ment much more dense and. expensive. To all this should be added the fact that grade crossings are almost unknown, and that double tracking is nearly universal, which means more expensive and numerous viaducts and bridges, usually of stone, while a great proportion of our own is trestle." (") The high capitalization in Switzerland is due to the difficult mountain routes, and to the fact that the roads were built and capitalized by private com- panies from which the government lately purchased them. (=°) The Reading owns some very valuable coal lands, but the original issues of securities made for the purchase of those lands have been substantially wiped out in the two subsequent reorganizations of the Reading (U. S. Industrial Commis- sion, vol. IX., p. 472), and the lands are mostly not in use, so it is neither their cost nor their earning power that has created this enormous capitalization. Ac- cording to the testimony of Mr. A. A. McLeod, former president of the Reading, "before the Industrial Commission, the Reading has $112,000,000 of capital that is not drawing dividends, and other so-called anthracite roads have $270,000,000 more that is equally sterile. . (^) Some further light is thrown on the subject by tabulating the mileage of various railway systems in relation to area and population. The following table is taken from Hazell's Annual for 1903: . 426 The Railroad Problem. It will not do even to compare public and private roads in the same country v^^ithout careful study of conditions. In France the private roads have cost nearly twrice as much per mile as the public roads because the latter are not located either in the most difficult or in the best and densest districts, while in Sweden the situation is reversed and the State roads cost twice as much per mile as the private roads. The only way to arrive at correct results is to go into the history of railway construction and capitalization in each case, and when we do that we find that public roads as a rule, especially when built on the direct employment plan, have been constructed with economy and capitalized at cost or below it; while private railways have given away stocks, paid exorbitant prices on construction contracts, and capitalized far above cost, so that the dissecting knife of history finds that half of our innocent looking national average represents water and gas." The principal methods by which private railways inflate their capital are as follows : 1. Giving away stock to directors and promoters and influential men either as an outright present or as a bonus with bonds. 2. SeUing stocks or bonds below par. 3. Giving excessive commissions to bankers and brokers for "float- ing" stock and bond issues. 4. Issuing stock dividends in addition to fair cash dividends. 5. Making construction contracts at excessive prices." 6. Building superfluous lines or extensions for capitalization pur- poses. 7. Reorganization with swollen capital. 8. Consolidation at excessive values. 9. Purchasing competing lines at their aggressive value or the price the buyer can afford to pay to get them out of the way — a price that is often far more than their real value, which may Per 100 sq. miles. Per 10,000 population. Belgium 22 6.03 United Kingdom 11.3 5.28 Germany 10.85 6.4 Switzerland 9.4 7'Z3 Holland 9.1 3.79 France 8.8 y.^6 United States 6.64 25.52 Austria-Hungary 5.2 4.66 The United States is almost at the bottom of the list in the ratio of railway mileage to area and has very much less population per mile of line than any other country in the table, which means that land cost would be comparatively very small; and when we remember that in many cases the right of way was donated and large blocks of land besides, we may still more fully realize the impropriety of comparisons minus details. (^^) See chapters on "Watered Stock" and "Railroad Graft." (=2) See chapter on "Railroad Graft." Contrasts in General Policy. 427 in fact be little or nothing, the lines being practically worth- less and built only to sell. 10. Buying mines, steamship lines, and other properties at inflated prices. 11. Establishing holding companies in terraces one above another. 12. Substituting stock for bonds at inflated ratios. 13. Funding of contingent liabilities. 14. Issuing fraudulent securities in evasion of law as in the Erie case noted in a former chapter. 15. Failing to write off or make proper allowance for depreciation. Through failure to write ofif or allow for full depreciation by sinking-fund or otherwise, or through purchase of private properties at prices beyond the value of the physical plants, as is often necessary under the laws governing the taking of property for public use, overcapitalization may invade even public works, but in the latter case the inflation is not due to public ownership, but to the preceding private ownership and the impossibility of squeezing all the water out at once, and in both cases the public management has strong motives to pre- vent intrusion of excess capital and to eliminate or eject it if it does get in; whereas private monopolies have fourteen other methods of inflation and strong motives to use them and to keep the wind and water in the system when they are once injected. A few examples in addition to those already given in former chapters will make these methods clear. The Union Pacific received only $400,650 cash on $36,762,000 of stock, and out of its capital of $109,814,812 at least $70,990,812 was fictitious.'* The Pacific Railway Commission reported that the four roads, — Union Pacific, Kansas Pacific, Central Pacific and Central Branch — that had claimed under oath to have issued $97,098,590 stock for cash, had in fact actually received but $i,797,35o. Less than two millions of stock had been paid for. Over ninety-five millions had been given away. <") Report of Robert E. Pattison, Special U. S. Railway Commissioner, 1888. The New York Central, Erie, Reading, St. Paul, Chicago & Northwestern, etc., also gave away a large part of their stock. He also referred to these "promoters profits as prevailing among other great industries as well as railroads. The Industrial Commission says in its final report (p. 406): "Stock has in many instances been given away by railroad companies simply as a bonus to bait purchasers of the bonds which the concerns were trying to float." . , , , n "In America the bonds first find their way to the public, and the shares usually represent no cash subscriptions, but, as a rule, are issued as a kind of bonus to subscribers on bonds, and serve as a basis for future profits, as stock which may add voting rights to regular interest." (Van Oss, "American Railways as Invest- "'""I'f the bonds are to be marketed at heavy discounts and every bond sold is to be accompanied by a gift of stock, as has come to be expected by investors in such enterprises, the traffic will be seriously burdened to pay interest and dividends. (President Harrison, Message, 1891.) „ . Hadley refers to this practice as a means whereby manipulators give certain parties control of the road without actually risking anything like the amount ot money represented by the value of their shares." 42'8 The Railways, the Trusts, and the People. The bankers' syndicate which financed the Southern Pacific received $40,000,000 in securities, or an average of $6 in bonds and stock for each dollar of actual cost. "The same thing," says the Industrial Commission, "happened in connection with other Pacific roads." When the Chicago & Alton was reorganized a large number of its bonds were handed over to the financial men for 65 and resold by them in Europe for 95, the difference of 30 being their share of the plunder. Mr. Morgan, for making the purchase of the Pennsylvania Coal Company for the Erie, received $5,000,000 of first preferred Erie stock. Any number of similar cases might be quoted. The Iowa Railway Commission says that in 1880 the C, B. & Q. in- creased its capitalization from $31,000,000 to $52,000,000, partly by declaring a stock dividend of 20 percent, and that in the same year the C, R. I. & P., by the same method in large part, increased its capital- ization from $20,980,000 to $41,960,000. The Industrial Commission calls this stock dividend practice the commonest method of stock water- ing, and refers to a number of well-known cases. The illegality of stock dividends in some states has rendered some caution expedient in this practice. Sometimes lines are built solely for capitalization purposes. The Kansas City, Pittsburg and Gulf, for example, had a mortgage which permitted them to issue $25,000 in bonds for every mile of track they laid. So when they wanted money all they had to do was to lay track. They put down about 100 miles of yard track somewhere on the line and issued two and a half millions in bonds for it. These they sold for 60 or 70 cents on the dollar and threw in an equal amount of com- mon stock with the bonds, making $5,000,000 altogether added to capi- talization. There is an ad infinitum element in such a process of irri- gation that is stimulating to the imagination. In his testimony before the Senate Committee on Interstate Com- merce in 1905, Commissioner Clements related how a certain $48,500,000 of railway capital came into being in a recent transaction. In the spring of 1902 John W. Gates secured control of the Louisville and Nashville at prices ranging from no to 130. When J. P. Morgan heard of this he was deeply concerned, for he feared Mr. Gates as a competitor in the southern railway field. So great was his haste to remove this rival that he sent Mr. Schwab at 2 o'clock at night to Mr. Gates' room to secure an option on the stock. He did not want the stock for him- self, but wanted to eliminate the independent control of a great com- petitor of his railroad, the Atlantic Coast Line. Mr. Gates sold them the stock at 150, and to pay for it the Atlantic Coast Line issued $35,000,000 in new bonds and $13,500,000 in new stock. Not a dollar's worth of the old capital of either the Louisville and Nashville or the Atlantic Coast Line was retired. Not a dollar was added to equipment, not a foot was added to the road, not a spike was driven, but $48,500,000 was added to the capital of this road to draw interest and dividends. Management. 429 The conscience of the civilized world condemns the inflation of capital as inconsistent with fair and honest dealing. Presi- dent Hadley of Yale University ; Mr. Poor, the famous author of the "Railroad Manual," an authority second to none in the railway world ; the Massachusetts Railroad Commission, which has done much to check overcapitalization especially in the case of street railways ; and the United States Industrial Commis- sion, all oppose emphatically the practice of inflating capitaliza- tion." But the tendency is inherent in private monopoly. Dropsy is in the blood. It is a family trait. Only the dominance of public interest through public ownership or rigid control can eradicate it. The tendency to fair capitalization and the extinc- tion of public-service capital must be regarded as one of the great advantages of the public management of public utilities. Chapter XXVI. MANAGEMENT. As the dominant motive of public railroads is service to the community, national benefit, the public good, while the dominant motive of private railways is private profit, one would naturally expect that public roads would secure lower rates in general, higher wages, more impartial treatment, greater safety, better service on the whole, fairer diffusion of facilities, larger economies in many ways, a greater progress iveness in matters affecting the safety and convenience of the public, than private railroads would attain in the same countries and under similar conditions otherwise than as to ownership ; and that on the other hand private railroads would offer lower rates in special cases to wealthy and influential shippers, etc., higher salaries to officials with lower wages for the mass of workers, more "flexi- bility" or "elasticity" in making concessions to powerful ship- pers, and more attention to economies that secure profit at the expense of labor or the public. C) President Hadley says the inflation of capital is "one of the worst evils" from which our railway system suffers- And the Industrial Commission says that "overcapitalization is without question injurious to the interests of investors and the public at large, altho to promoters and bankers it opens opportunities for great gains." 43Q The Railroad Problem. The facts agree with these conclusions in the main; indeed there is strong reason to believe they agree entirely when due allowance is made for differences of conditions and extraneous disturbing causes that are at work in various cases. Let us glance at some of the facts. The fastest and most powerful locomotive at the St. Louis Exposition, 1904, was the big electric locomotive exhibited by the German Government. The greatest speed yet made, I be- lieve, has been attained in the German railway experiments with electric transit,' and a most progressive spirit has been mani- fested by the Government railway management of Germany, not only in respect to speed and promptitude, but in the adoption of safety appliances, improvement of the condition and efficiency of employees, coordination and adaptation of the railway service to the needs and wishes of the people through constant consulta- tion with representative public bodies and industrial organiza- tions, etc., etc. Among the many notable German railway exhibits at St. Louis was a giant outdoor exhibit of their auto- matic safety switch arrangements, life size and in full operation. The selection, testing and training of railway men is much more carefully done on the German state roads than on ours. Austria has shown a very progressive spirit in her valuable experiments with the zone system. Denmark's state railways lead the world in the use of a most admirable and stimulating system of profit-sharing with employees. New Zealand's public railroads have gone still further, introducing co-operative labor 'in the work of construction and repair and establishing railway appeal boards and other excellent methods for the settlement of disputes between the workers and the management, by arbitra- tion or judicial decision. Beyond Question, in all that relates to safety, justice, and the uplifting of labor, public railways are far more progressive than private roads. Some of the subheads under this broad topic of management call for special notice. The rate question and the treatment of employees will be dealt with in subsequent chapters. Service, economy and efficiency, and safety will be discussed here. (^) See article by Henry S. Pritchett in McClure's, March, 1904, describing a trip in an electric car on the famous German experimental road at 130 miles an hour. Management. 431 Service. Our railways claim that private railway management is supe- rior to public management; that our railroad service is much better than that afforded by the state railways of Europe, and that our good service is due to the fact of private management. How is it then that our buildings and elevatois are superior to those of European cities, and that the superiority is far more marked in this case than in the case of railways, altho the buildings and elevators we are comparing are private on both sides of the water? How is it that our street railways are infinitely superior to the private street railways of England, France and Germany, and that the superiority of our trolley systems over the private tramways of Europe is far greater than the superiority of our street railways over the public tramways of Europe — the municipal street railways across the sea, being, as a rule, vastly superior to the private systems in use in the same countries? How is it that our manufactures, commerce and agriculture are greatly superior to those of Europe, altho these industries are subject to private management there as well as here? If our railroads are superior to those of Germany and Belgium because their roads are in the hands of the State, how do you explain the fact that our railways are still more superior to those of England, France and Spain, which are operated by private companies? The German railroads are admittedly the best managed in Europe. If private ownership is to be regarded as the cause of good service, how is it that the state railways of Germany are so much better managed than the private rail- ways of England, France and Spain ? The fact is that the difference of ownership is not the only cause at work; and that so far as public or private ownership affect the service, the former usually improves the service on the whole in marked degree, the superiority of public roads over private roads in the same country, and over the same roads under the former private management, being one of the most manifest, emphatic and universal facts in railroad history. Most of the differences in railroad service are not due, however, to the form of ownership, but to national characteristics, the operation of the law of supply and demand, and other special influences entering into the case. Our railway service is, I 432 The Railways, the Trusts, and the People. believe, in many respects the best in the world ; at least it is the best I have seen ; but in viewr of our equal, and in some cases far greater, superiority in industries that are private on both sides of the water, it is clear that the quality of our railroad service is due to national character and other interlocking causes. In mechanical industries, as a rule, America leads the world; and we should expect our railroads to head the procession in regard to their material aspects whether they were public or private. The law of supply and demand in conjunction with natural conditions has also had a part in our railway develop- ment. Long routes between big cities call for high speed, and any enlightened railway management, public or private, would try to meet the demand. A population containing a large per- centage of rich and well-to-do people naturally calls for luxu- rious travel, and again the railways yield to the demand. — Besides the intervention of natural causes, national traits, and social conditions, it must be noted that our private roads do not in all respects by any means possess the superiority that is claimed for them, and that a considerable part of the excellencies that do exist have been created by the pressure of public control in spite of the obstacles erected by private ownership. Especially is this true in relation to safety appliances, which in large part have been adopted by our railroads only under compulsion of law. It is a fact of deep significance that the Swiss railway min- istry has decidedly improved on the service rendered by the private companies before the roads were taken over by the Gov- ernment. The same thing has happened this year (1905) in Italy, and in earlier years in Germany, Belgium and other countries — as the private roads were taken by the Government, one of the most distinct and universal accompaniments of the change was a marked improvement in the service. These facts, which are unquestioned, give us the truest basis of comparison, for here we have railways in the same country and under the same conditions, the very same railways in fact, with no cause that could possibly produce the effects noted except the change from private to public ownership and operation. Good service requires safety, speed, promptitude, adequate facilities fairly distributed, convenient methods, and impartial Management. 433 treatment. In respect to the first and last items, which are the most vital of all, our railways are at the bottom of the list in a tabulation of the principal systems of the world. As to speed, while we have on a few special routes the fastest trains in existence, our average speed, according to high authority, does not compare favorably with averages from over the sea."" The former president of one of our greatest eastern railway systems says that his lines were not allowed to utilize fully their facili- ties for fast time between New York and Chicago, etc., because if they did the other roads would institute a rate war. In order to avoid such a war the railroads between Chicago and New York, Chicago and Denver, and other central points made agreements limiting the speed on all the competing lines. Un- questionably this limitation extends to other matters of service, for any strong line would, as Prof. Ely says, "hesitate about offering a decided improvement upon present facilities at the old rates, fearing attacks in the matter of charges from those who may be left behind.'" Much complaint is made when labor unions try to limit out- put and efficiency ; what shall we say when our capitalistic rail- ways do the same thing ? A state system having all the railways under one control is not open to such limitations. Moreover our private railways do not seem to care very much how slow their service is on local routes in country districts where they have a complete monopoly. The managers of public roads give far more attention as a rule to the rural service, the fair diffusion of benefit being one of the fundamental principles of the public service, precisely contrary to the policy of private roads. In respect to promptitude the German service is far ahead of ours. Careful selection and training of railway men, and the premiums given for keeping schedule time have produced as- tonishing results. Even on our best systems there is far less regard for promptitude than in Germany, and on many of our railroads the delinquencies in time are as bad as they are in any country I have visited. Even in Italy, where it was a com- (^) Franklin B. Locke, in the Century Magazine, May, r898,_ p. 105; Theodore Voorhees, Gen'l. Supt., New York Central & Hudson River Railroad, in The In- dependent, Oct. 6, 1892. (^) "Monopolies and Trusts," p. 75. 434 The Railroad Problem. mon thing for the principal trains to be three or four hours, or even half a day late, and to have an express train from Milan or Naples coming into Rome on time would cause more comment than if it came in one to three hours late as usual — even these exasperating derelictions, so common in Italy before the Gov- ernment took the railway management, are no worse than the conditions which exist on some of our southern routes. Even such important trains as those that run from Florida to Wash- ington are frequently several hours late, and sometimes passen- gers are delayed twelve and even twenty-four hours on the way. Nor are the North and West free from this disregard of the prime requisite of promptitude. Even in our greatest and wealthiest cities there are systems that seem to have no con- ception of the time limit in railway service. The Erie, for in- stance, has established a reputation for bein^ almost always late, and on the Norfolk and Western it is not regarded as any- thing very remarkable for a train to be so late that its schedule has to be abandoned and its passengers held over for the next day's trains. Some of our best railroads have been known to sidetrack passenger trains to let Armour's beef cars go by, and the arbi- trary routing of goods in use in various parts of the country constantly causes delay and waste of transportation power. In the carrying of fruit, for instance, wherein quick service is of supreme necessity, we find railroads refusing to let the shipper route his own goods and doing the routing to suit themselves in such a way as to send the traffic over longer and roundabout lines rather than over the most direct lines, because of some arrangement with the longer roads for mutual favors in the routing of business, or some other consideration sometimes con- sisting of a payment to the routing clerk. "Such shipments are often delivered many hours late."* This practice is chronic with many of our railroads. Inadequacy of facilities at times of such need is another count in the indictment of our transportation service, private railways preferring to risk some loss to shippers and themselves (*) Sen. Com. 1905, p. 354-8. In one case when complaint was made con- cerning tlie idelay and loss incident to this practice, the traffic manager declared that circumstances compelled him to do it, and indicated that those circumstances were of the nature of contracts. The service has to suffer when it comes into conflict with an opportunity to sell the tonnage. Management. 435 rather than to invest in equipments large enough to fully meet the demands of periods of such pressure and unusual rush. A European railway is expected to handle all the business offered it, however great it may be, and to do it at once; but in this country the customers, even of a line like the Pennsyl- vania, take it as a matter of course that the railway will be unable, in the autumn at least, to give them all the cars and ~ service they ask for. "It is a fact," says a report of the Erie Company, "that for the larger part of the year the trunk lines have been unable to furnish equipment to move the tonnage offered." Over half a million dollars worth of strawberries rotted this year (1905) in North Carolina because of the failure of the railroads and the Armour Refrigerator Company to furnish a sufBcient number of cars. A report from Chadbourn, N. C, IVTarch 7th, says : "More than $200,000 worth of strawberries have rotted at the depot here since Monday morning. The railroad company is hauling carload after car- load of spoiled berries to the river and dumping them like so much garbage. The loss to the truck-growers of this immediate section, according to figures said to be reliable, will be at least $600,000. . . . More than a hundred representatives of the country's commission liouses are here willing to pay from $2 to $3 a crate for the berries if they could only ship them. Ten thousand hands are at work picking the berries." Hundreds and hundreds of carloads of strawberries had to be taken ■out and dumped because the Armour Car Lines, which have a monopoly through their exclusive contract with the Atlantic Coast Line, failed to supply the cars necessary to move the strawberry crop. The transpor- tation people had ample notice from the fruit growers and from the Commission Merchants' Association that it would take 2,500 refrigerator •cars to move the crop, yet the supply of cars gave out before the first ten days of the season had passed.' The following letters written from Chadbourn by C. Sturtevant to F. M. Leonard, Boston, afford a glimpse of the actual situation more ■concrete than can be given by any general description of mine. "May 3, 190S — It looks now as if the berry business would be over "by the time we get cars. I have 1,200 crates on the platform at Clar- endon marked to you, but they will never go out as they have already ■spoiled. There were four cars rolled into Chadbourn about ten o'clock last night. That was all the cars that came here yesterday in this whole (°) Sen. Com. 1905, pp. 2596-2622. Testimony of Mr. George F. Meade, Pres. •of the National League of Commission Mercliants of the United States; Report from Chadbourn, March 7th, published in "The Fruitman's Guide," and J. S. Westbrook's report, from Wallace, N. C, May sth, published in the "Carolina Fruit and Truckers' Journal." At times during the season no cars at all were obtainable for four or five days together. 436 The Railways, the Trusts, and the People. section for two days, Monday and Tuesday. There are surely 125 carloads left on the ground and platform. This morning they have a lot of box-cars placed in here. I think the railroads are going to load them and take them away." "May 7, 190S — There were about 65 cars of berries picked in this section yesterday, and at S o'clock last night 25 refrigerator cars rolled into Chadbourn. They left 4 cars here at Chadbourn and sent the other 21 all over this section. I tried to get a car from Tabor, but did not get it. They promised to have 15 cars more for Chadbourn before 12 o'clock last night, but they did not come in until this morning and there were only 11 then, and they are not iced. So all the berries picked here yesterday but 25 cars are left on the ground and platform. They will not be loaded only for the dump. Yesterday a solid train of box-cars piled to the roof were taken to the dump. We have not had but 1,800 crates this week, and I would have easily moved 5,000 if a car shortage had not come. Monday night I had about 700 crates out and 900 left over. Tuesday I marked 900. I surely had my plans laid to move them this week, but Tuesday, Wednesday, and Friday I could not get a car, as there were only 5 or 6 a day came into the whole country." At Pittsburg and in other places in busy seasons frequent blockades have occurred which seriously disturbed the business of the country, and not only sidetracked large masses of freight traffic for weeks at a time but seriously interfered with passenger transportation also, and threw the business affairs of multitudes of people out of joint. Private railway service is also subject to interruptions and even practical annihilation for days and even weeks or months at a time in consequence of those violent difficulties with labor we call strikes and lockouts — difficulties which almost never occur on public railways and are quickly remedied when they do occur. Our railway methods are in some important respects far less convenient than those in use in Europe. We pride ourselves on our baggage check system, but European travelers complain that our baggage system is far less convenient than theirs. At the International Railway Congress, held in Washington, May, I905> vigorous objections were raised by many prominent dele- gates to our methods of handling baggage. They declared that in Europe the baggage is collected and delivered by the rail- ways, or is taken with the passenger by means of cabs and porters, etc., and carried either in the same car with him or in the baggage car on the same train and is delivered at the hotel or residence at the same time the passenger arrives at destina- Management. 437 tion, or very soon after; whereas in this country the traveler has to secure the services of some separate transportation com- pany or pay excessive rates for express, and in any case is hable to have the deHvery of his baggage delayed for two or three hours or more after his arrival, depriving him, perhaps, of the opportunity to change his clothing, and keeping the ladies of the party from making their accustomed toilets for the even- ing, etc., etc. It is even difficult sometimes to get your baggage checked through to destination. The New Haven road for example will not check your baggage from Boston to the Cunard Pier, New York, or to the Pennsylvania depot or other out-going points in that city, even tho you offer payment for New York City transfer. And if you are going from Boston to Washing- ton and hold a ticket for the through trip they will still refuse to check your trunk through unless you bought the ticket for the entire distance from them. A leading European railroad authority who has traveled much in this country has complained to me in forcible language of the bad ventilation in our cars and the excessive heat one often meets with even in our best trains. He says the passenger is roasted and chilled by turns. One car will be so hot and poorly ventilated he can scarcely breathe, while on another journey he may have to sit in a current of cold air, better adapted to preserving fruit and dressed meat than for the production of comfort in the living passenger. He insists that all the objec- tions raised to the European compartment system are as noth- ing compared to the inconveniences and unwholesomeness of American travel. This attitude, however, is partly due to na- tional differences. We over-heat and under-ventilate, as a rule, not only our railway cars but our living rooms and public halls also. Another vigorous criticism made by foreigners upon our rail- way service is that our private railways deliberately and syste- matically divide up the service in a most inconvenient way, and place the public at the mercy of various other private com- panies which are even further beyond public regulation and control than the railways themselves. For express service, for fast freight service, for refrigerator service, for parlor and 438 The Railroad Problem. sleeping and dining car service, for tourist and excursion serv- ice, for transfers, meals and other personal accommodations, for stock cars, elevator service, lighterage, and many other things that cost sometimes more than the tariff itself, the railways turn us over to comparatively irresponsible private companies, and not only is the service less satisfactory than it need be, but the confusion, waste, and duplication involved are expensive and have to be paid for. Railways in Europe, as a rule, collect and deliver goods as well as baggage. This is a great convenience, and the delay incident to the European service is much less than in this coun- try. Mr. Acworth, writing for an English audience, says : "To deliver a mixed load at a New York freight-shed is often a matter of many hours. A man may wait for a long while be- fore he can get a receipt for the first consignment he hands in, and then be told that the next lot is for a different station and must be taken to a diiferent door, and so the whole weary work of waiting has to be begun over again. One of the great cart- age firms declares that not infrequently the horses are taken out of their carts and sent away to work elsewhere, a watchman being left in charge of the goods until the railway company is able to take delivery."" We have no cheap trains for workingmen such as those which carry working-people in and out of the large cities in Ger- many and England, for example, for 25 and 50 cents a week. We have no such cheap excursions and admirable tourist ar- rangements as they have in Switzerland, Germany, Belgium and New Zealand; no concessions to school children such as state railways in some countries make, no special rates for libraries or for the development of agriculture. The special rates our rail- ways make go to the Beef Trust and the Standard Oil. Taking speed, frequency, promptness, comfort, convenience and cost into account, the service on our railways is regarded by many as inferior to the service on high-grade state railway sys- tems so far as the mass of the people is concerned. For the wealthy, who can afford the luxuries of travel, no country can compare with ours ; but for the bulk of the people, working- (') "The Railways and the Traders," p. 277. Management. 43^ classes and those in moderate circumstances, our service is by no means up to the standard of the best foreign service. And if we ask our railways for better service and conditions, what reply do we get? The city of Bridgeport, Connecticut^ ■on the occasion of a request from the New York, New Haven and Hartford Railroad for permission to quadruple its tracks through the city, sent word to the railway that it must sink the tracks below the street level. The railroad replied that unless the requirement of a subway were withdrawn the existing con- veniently located station would be abandoned and the railway would go around outside of the city. Trains are taken off and schedules changed in many cases with little or no regard to the interests of some of the communi- ties affected. A few years ago even so important a city as Philadelphia was practically sidetracked by the Pennsylvania Railroad by changing the arrangements, by which trains from the South which formerly went into Broad Street Station, which is central in Philadelphia, touched only at West Philadelphia •station, a very inconvenient place for strangers to disembark, and then the trains went whizzing on to New York.' It was in contemplation of these and other similar facts that ■one of the most famous writers of Europe said to me recently : "No other nation on earth would put up with such bullying from the railroads as you Americans permit." Economy and Efficiency. Public roads economize on salaries but pay more in wages than private railways in the same countries. They also spend more for track construction and safety appliances and less for administration and operation.' They escape the lobby and legis- (') See the series of broadsides on these subjects in the Philadelphia North American during August, 1903, and the early part of 1904. An excursion ticket from Washington to New York and return allowed 10 days in New York. For- merly a southern buyer going north on such a ticket could stop over in Phila- delphia. But in 1903 this stop-over privilege was revoked, and if the buyer stopped in Philadelphia and then bought an excursion to New York he could only stay 5 days in New York. The result was that southern buyers began to leave Phila- delphia out in the cold, and merchants found that "the present tariff arrangements are working incalculable injury to wholesale houses in Philadelphia" and some of them had to open houses in New York. C) Comparisons between public and private railways in countries where both systems are in operation show that the government railways spend _ a higher per- centage for "maintenance of way" than do the private railways, while the cost of "administration" and the "traffic expenses" of the private railways are higher than -those of tlie railways of the state. (Railway Problems, J. S. Jeans, p. 461-3.) Some 'Of the figures given by Mr. Jeans are as follows: 440 The Raihvays, the Trusts, and the People. lative expenses incident to private railways; their costs for litigation and damages are less and their rates of interest are lower than in the case of private railways. They gain from the superior efficiency of better paid and more contented labor and also by the farsighted policy of developing industry by low rates and adequate service in the country as a whole, including the rural districts as well as the cities. A further gain of large importance is made by public roads through coordination and unity under a single national management, whereby the wastes of severance and competition are avoided." If all the needless duplications of management, general offi- cers, depots, competitive agents and competitive advertising, carrying of empties, wasteful routing, useless or worse than useless political and legal expenses, etc., etc., could be done away with, hundreds of millions of dollars could be saved to railway users every year in this country and Great Britain. In Great Britain, leading railway authorities — the secretary of the I»ondon and North Western Railway Company, the manager of the Lancashire and Yorkshire, and the late eminent railway engineer. Sir Edwin Chadwick — have estimated that the pre- ventable railway wastes in the United Kingdom amount to 20 PERCENTAGE OF TOTAL WORKING EXPENSES. Country. Maintenance of Way. Administration. Traffic Expenses. State. Private. State. Private. State. Private. Percent Percent Percent Germany 35-90 28.20 9.40 13.10 31.10 35-30 Austria-Hungary 38-12 30.21 6.50 8-47 29.03 32.54 Belgium 24.04 24.86 5.05 10.13 25.96 32.79 Russia 40.40 31.03 9.27 13.70 11.83 21.34 This illustrates certain clearly defined tendencies of the two systems. In the matter of management and traffic expenses the state railroads being under one united management and having no corruption, graft, or competitive expenses, are operated with greater economy than the private railroads, while in the matter of keeping the roadbed and structures in order the state railway managers are not actuated by motives of private profit as are the private railroads, but spend money more freely for improving the service and insuring the safety of the traveling public. It is estimated that the cost of handling freight at the terminals of European cities where hydraulic car-lifts, etc., are in use is less than half the cost of handling the same amount of business at our surface terminals in America; and that the average returns upon railway capital are greater in Europe than they are in this country. Our American railroads, afraid of the first cost of these elaborate im- provements, have discouraged the growth of business and encouraged the construc- tion of competing street car lines that attempt with imperfect success to give us rapid transit service, but succeed in diverting an enormous amount of business from the railroads. (Century Magasine, May, 1898, p. 93.) (') C. P. Huntington, president of the Southern Pacific Railway, said that the local wastes in New York City alone from the lack of railway unitj^ amount to $100,000,000 annually (U. S. Ind. Commission, IX, 985). And President Hunt- ington's estimate is not only confined to a single city, but covers only the losses throueh duplication of railroad offices, employees, etc., in the struggle for com- petitive business. He did not include funds wasted, or worse than wasted, in cor- rupt or questionable political expenses, or the salaries of superfluous railroad presi- dents and other highly paid officials, nor the cost entailed by competitive routing, return of empties, or many other wastes resulting from the lack of unity in the management of the railways as a whole. Management. 441 to 24 percent of the operating expenses. In this country it is estimated that public management of the railways would result in a saving of $250,000,000 to $300,000,000 a year." And this does not include the savings that would result from the pay- ment of lower rates of interest and the elimination of divi- dends on watered stock. It is conceivable that the savings due to national unity of management could be secured under private ownership, but no great nation has dared to allow such railway unity under private ownership. Wherever the sense of the need of unity has grown strong public ownership has been the result. National railway union in private hands is too dangerous to free and independent government. And when it is a question be- tween government ownership of the railroads and railroad ownership of the government, the judgment of the civilized world has always been in favor of the former alternative. A further enormous waste of industrial power results from the abnormal appetite of our private railways for traffic regard- less of consequences. They want tonnage, and to get it they will make rates that create vast amounts of useless haulage. For example, they enable sash and furniture manufacturers in Michigan to ship their goods into New England markets as cheaply as the manufacturers of New Hampshire and Vermont, and they enable New England factories to ship their products into Michigan and even to the Pacific slope in competition with western manufacturers. They not only equalize the rates on fruit from California to all the markets east of the Missouri River, which in many ways is doubtless an admirable policy, but they also practically equalize the advantages of California fruit in our eastern markets with fruit from the South, which is not so admirable, since it tends to remove the natural stimulus to production in advantageous locations near the markets to be supplied. The workings of this natural principle result in a vast economy of transportation cost, and undue interference with the working of the law results in immense waste of indus- trial force. When one sees a trainload of bananas going from the port of entry at New York to be sold in Boston markets, while another trainload of bananas which landed at Boston is going in the opposite direction to be sold in the New York markets, (.") Ind. Com. IX, p. 147-9. 442 The Railroad Problem. it is possible to realize in some degree the wastefulness of the indiscriminate efforts of our private railways to secure tonnage without regard to the effect of the traffic on the social welfare. The public railway system looks naturally to the public good and studies the broad effects of all its tariffs and policies, and would not make a tariff that would, invite the industrial absurd- ity of a trainload of bananas from New York to Boston pas;sing en route a trainload of bananas from Boston to New York. The equalization of, rates is an admirable policy within reason- able limits, but if carried to excess it results in enormous wastes. The efficiency of labor on our railways is far greater than that attained in foreign countries; that is, our railways show more ton miles and passenger miles per employee than the rail- ways of other lands ; partly because of our long hauls and giant traffic which lead naturally to the handling of a large volume of traffic per worker, and partly because American labor is more efficient as a rule throughout the industrial system. In agriculture, for example, which is carried on by private enterprise in Europe as well as in America, the difference in our favor is far greater than in the case of railways. Mulhall says in his Dictionary of Statistics : "One farming hand in the United States raises as much as two in the United Kingdom, three in Germany, five in Austria, and .■seven in Russia. . . . The number of farmers and farm laborers in Europe is just nine times that of the United States, while the weight ■of food raised is only double ; that is, it takes 4^ Europeans to raise as much food as one American." In England the "Statist" and other journals have for years been criticising the British railways and comparing them with the German Toads and the American roads to show how inferior and inefficient the English service and methods are. For example, the freight cars have only four wheels and are very small, seeming to America almost like toy cars ; and so little attention is given to the loading of freight trains that a serious waste of space and power results. Different railway systems in the same country vary exceed- ingly in respect to their efficiency. This is due in part to the density of traffic and other special conditions, and in part to the personal equation of the management. James J. Hill, for ex- ample, has secured remarkable efficiency on his Great. Northern system by the simple expedient of turning on the light. He sends each month to every superintendent and official of the railway a large sheet on which is clearly shown the record of every department of the road for the month just past and for Management. 445 the preceding month and for the corresponding month of the year before. In this way every man knows precisely what he and his department are doing and how his record for the month compares with his own past and with the record and progress of every other department. This system begets an accuracy of knowledge and a healthful spirit of emulation which has worked wonders on the Hill lines. Safety. There is no surer mark of the onward march of civilization than signs of an increasing regard for the sacredness of human life. Safety of employment and travel upon a railway, there- fore, is an important factor in determining our estimate of the railway's management — so important that no apology is needed for discussing it at some length. In my testimony before the Senate Committee on Interstate Commerce, May 18, 1900, I called attention to the fact that a comparison of the mortality statistics of our railways with the records of the Rebellion discloses the fact that it is more dan- gerous to be a brakeman on our railroads than it was to enlist in the armies of the Republic for service in the Civil War." That comparison was based upon the casualties among railway employees in 1898. Turning now to the proportion of railway employees killed to the total number employed in 1903 we find that the percentage of slaughter increased over 19%. And the report for 1904" shows an increase over 1903. On the other side of the ocean no such wholesale slaughter of human beings can be laid at the door of the railway indus- try. In Germany, Belgium," and England the railroad business (^0 Senate Document 420, 56th Congress, ist Session, p. 44. Other similar comparisons have been made; "In a recent year more railway employees were killed in this country than three times the number of Union men slain at the battles of Lookout Mountain, Missionary Ridge and Orchard Knob combined. The number injured was greater than the wounded and missing at Shiloh, Antietam and the ist and 2nd battles of Bull Run combined. In the bloody Crimean War the British lost 21,000 in killed and wounded — not as many as are slain, maimed and mangled among the railroad men of the country in a single year." — (Report of the Wis- consin Railway Commissioners, 1894, XIII.) The New York Evening Post records that while the British army in the South African war lost 22,000 men, including deaths from disease, the American railways, in the three years ending June 30, 1900, had killed 21,847 persons. — (The Social Unrest, p. 210.) ('") See Report of I. C. C. for 1905. Year ending June 30, 1904. (13) "Xhe Belgium fatality statistics speak eloquently for the management of the Belgian railways. When out of 96,938,777 persons carried we have not the death of a single passenger due to the railway's negligence, and only 7 such deaths by the passenger's own imprudence, the fact is high praise of the method of organi- zation and operation of the railway system." — TJ. S. Consular 52:303, Henry C. Morris, Consul (1896). 444 The Railways, the Trusts, and the People. is scarcely more dangerous than other mechanical pursuits, and railroad travel is made as safe for the public as sleepless care and lavish expenditure can make it. The follovifing table shows the proportion of passengers killed and injured to the total number carried and the proportion of employees killed and injured to the total number employed in different countries as given in the reports for 1902-4 : Country. Passengers. Killed, I in Injured, i in Employees. Killed, 1 in Injured, 364 I m 84,424 _ . 445,000 736 BO 2,113,471 1,199 451 431,937 2,266 98 1,328,551 1,908 363 1,052,000 954 355 849,820 1,070 42 9,467,000 4,350,000 3,450,000 250,000 308,000 158,000 208,000 271,000 589,000 2,500,000 - - - _ For example, Denmark's railways killed no Tasmania killed none in 1903 and United States" 1,957,441 Great Britain" 8,073,000 Germany 11,701,354 Belgium" 33. 151, '73 Austria-Hungary 9,432,303 France 5,260,000 Switzerland 12,237,515 Denmark 18,935,151 Norway 7,690,000 Sweden 6,667,000 Russia 1 ,080,000 Spain 2,000,000 Canada 1,120,000 Victoria 20,000,000 Tasmania New South Wales 5,000,000 South Australia 6,667,000 The figures vary from year to year, passengers in 1903-4, but did kill one_ for 1904-5. Victoria only one to twenty million journeys. It appears from these figures that railway travel is safest in Denmark, Norway, Sweden, Belgium, Germany, Switzerland, Austria-Hungary, and Australia; that it is more dangerous in Great Britain than in any of the above named countries, and that in the United States it is most dangerous of all; about 6 times as dangerous as in Germany, 17 times as dangerous as in Belgium, 3 times as dangerous as in France, and 4 times as dan- gerous as in Britain. In the United States and Great Britain the railways are owned and operated by private companies. In France the roads are mostly operated by private companies under a high degree of government control, and a good degree of safety is secured, but it is an interesting fact that it is four times as safe to ride on the railroads operated by the Govern- ment in France as it is on the French railways operated by the companies under Government control." In the other countries i'^^) The returns of accidents in the United States are confessedly incomplete, while those of the other countries given are unquestionably correct. A complete report of accidents in this country would make all our comparisons even less favor- able to our railway management. (y^) The 618,000 holders of annual tickets are not included. Estimated on the same basis as are the commuters in this country these would make a showing about 35 percent better for Great Britain's treatment of passengers. (") Drunks and suicides eliminated. The Belgian management keeps a strict account of these, but not all other managements do. <") Industrial Commission, vol. IX, p. 154. Management. 445 named they are owned and operated by the government. Bel- gium, Austria-Hungary, Germany and Switzerland killed con- siderably smaller proportions of their employees than did France, Great Britain and United States. France and England have secured their safety at the cost of a rigid government control over the operation of the private railways, which has in large part taken the life and spirit out of the railways at the same time that it has checked their tendency to disregard safety and avoid the expense required to secure it. In the United States the control by the law is not effective, and we see the real tendency of private ownership of railways in relation to safety — the tendency to look first, last, and all the time at the cost, and avoid the expenditure necessary to abolish grade cross- ings, etc., if they think it will be cheaper to pay damages. In Belgium and Germany the operation of the railways by the state permits the attainment of safety without the sacrifice of freedom, life and progressiveness. Our American data for 1904 are now at hand and show even a worse state of affairs than the figures for 1903. They are : passengers, i killed for every 1,622,267 carried, and l injured for every 78,523 carried; employees, l killed in every 357 and i in every 19 injured. During the last three months of the year 1905 there were 2,077 collisions and 1,645 derailments on our American roads; loi passengers were killed and 2,868 injured; 1,008 employees killed, and 14,250 injured. A passenger is about 6 times as likely to be killed in the United States as in Germany and 25 times as likely to be injured, while a railway employee is over 3 times as likely to be killed by our private railways and over 20 times as likely to be injured. In one of our medium sized cities (Buffalo) there have been known to occur more railway killings at grade crossings in 18 months than occurred in the whole of Germany for the succeeding period of 5 years' time; and about as many similar fatalities occurred in Chicago in 1891 as in the whole of Great Britain and Ireland for the 5 years that followed. The Iroquois Theatre holocaust in Chicago stirred the nation from sea to sea with sympathy and horror, but the railroads killed 11 times as many people in the same year as perished in that awful catastrophe. The Johnstown flood and the Galveston horror shocked the sensibilities of the world with their terrible sacrifices of human life, yet the rail- roads of the United States killed last year nearly 20 -percent more persons than the total number of casualties in both of those historic calamities, and in addition wounded about 10 times as many more. In two recent train accidents reported by the Interstate Commerce Commission in 1904 more persons were killed than were killed in train 446 The Railroad Problem. accidents by the state railways of Belgium in their entire history from 183s to 1900. "In no other employment," says the statistician of the Interstate Commerce Commission, "not even in mining, which is a most dangerous occupation, can such results be shown."" Certam conditions and practices prevailing in this country are clearly responsible for much of the waste of life on our railways. Grade- crossings, which are an unavoidable evil in the early stages of railway development in a sparsely settled country, are permitted to remain in the most densely populated sections of our cities. The New York Central sends its freight trains along nth avenue and West street for more than three miles of a crowded New York City district. Buffalo, with 10 railroads and 642 miles of track already within the city limits, recently admitted another railroad with its new lot of level street crossings. Similar conditions exist throughout the country.^" The overworking of employees is many times the cause of accidents. Of the prominent train accidents in 1904 the Interstate Commerce Report (page 361) shows that six were caused by employees falling asleep. One flagman who had been on duty 16^ hours was ordered to hold a train. He went into the caboose of the freight to get a red lantern, sat down to warm himself and dry his clothes, and fell asleep. In one case a fireman who left a misplaced switch had been on duty 20 hours. One train crew being 12 hours late forgot their instructions. The employment of inexperienced men is many times responsible for the loss of life. In some cases there are not enough men employed.^' Most frequently the fault in train accidents is traceable to a failure or misunderstanding of orders and signals. "The collisions that cause deaths by the score and arouse the indig- nation of the whole public are due to causes which figure in the (1") Forum, June, 1892, p. 500. (^°) Some of the eastern states, by paying a large part of the cost out of public funds, have succeeded in starting a movement for the abolition of grade crossings; but whatever is accomplished in this line is at a considerable expense to the tax payers. In New York State, where there is a law now in force providing for the abolition of grade crossings in this manner, it is estimated that an end will be made of this menace to life after 800 years have passed and 100,000 more lives have been lost in that State in this way. While 57 percent of the railways of Great Britain is double-track road, only syi percent is double in the United States. The block system is used on 90 percent of the British railways while it is on only s percent of ours. In Great Britain 94 percent of all junctions, crossings, turnouts md passing and yard switches used by passenger trains are protected by ilLter- locking signals. In the United States there are no records from which it is possible even to estimate the amount of such protection, but it is relatively very small. Mr. Acworth tells his English friends of passing through the streets and squares of Rahway on a Pennsylvania train at between 62 and 63 miles an hour. "There was, it is true, a fence to keep the public off the track. It consisted of a single iron rail of about the height and about the strength of a croquet hoop." So common a con- dition and practice escapes our American attention. He also calls attention to the surface terminals at Jersey City. "There are passenger trains dashing in and out every moment, and shunting engines moving hither and thither, tolling their great bells, in bewildering confusion. And through all this the foot traffic and cart and carriage traffic of Jersey City with a population of some 200,000 persons, has to find its way as best it can, on the level. According to a statement of one of the New York papers, the Pennsylvania Railroad alone has 2 trains a minute across and through the streets of this unfortunate town; but, by dint of maintaining four flagmen constantly on guard, it succeeded in keeping the fatal accidents during the year down to only 20!" ("Railways and Traders," p. 275.) (^^) "In many localities only 2 or 3 men are employed as section hands to keep in repair 20 miles of railroatd." — Kansas Railway Commission, 1894, p. 5. Management. aaj records every month." == "The best efforts of the most intelHgent and broad-minded managers," says Mr. Lewis,'' "avail but little in affording protection for employees engaged in freight service. They may equip every car and locomotive on their own railroad with the most approved safety appliances, but these amount to little compared with the great mass of freight cars from every portion of the country, and from rail- road corporations managed with too much niggardliness to supply these appliances or too poor to pay for them." So we have not only a lack of investment and a lack of consideration for employees and a lack of unity in management at the bottom of much of our railway slaughtering, but there is also that deeper cause, in the system of private ownership itself, with its main motive of gain and those attendant conditions and h'mitations which make it impossible for our railways to conduct their affairs according to the dictates of conscience and humanity, or even of enlightened and farsighted self-interest. Accidents are expensive to the railroads. The New York Central, for instance, v/as obliged to pay nearly one and a quarter million dollars in damages for one accident. "Railway ■ officials are more anxious than other people can be," says the Rhode Island Railway Commission (1903, p. 5), "to guard against all kinds of accidents, not only on account of their desire to prevent suffering and loss of life, but because their own reputation is involved, and the pockets of all their stockholders are touched by failure so to do." But, take what precau- tions it will, the New York Central is liable at any time to get hold of a defective car from the Squedunk Railway, and that car may cause the greatest accident in the history of the road. The self-interest of private railways cannot be safely relied upon in this most important matter. Many of the railroads deliberately calculate that it is cheaper to pay what they must for the lives destroyed, after fighting in the courts and compromising with the relatives who often lack time, money or evidence for successful legal controversy, than it is to make those well-known improvements by which the excessive slaughter could be averted. The law has made some faint efforts to reduce the number of railway victims. The railways engaged in interstate commerce have been required to equip their freight cars with automatic couplers and grab irons, and to supply air-brakes to at least 50 percent of each freight train, and to report accidents to the Interstate Commerce Commission. Each of t-hese requirements was stubbornly opposed by railway men, and there have been some flagrant cases of violation since their enact- ment. In 1893 Congress passed the Safety Appliance law, having received three special messages from President Harrison urging the action. A petition signed by 10,000 railway employees had also been sent to the Interstate Commerce Commission asking for protective measures. For these and other reasons, the very active opposition of railway men to this act did not prevent its passage. The railways were ' (^) Interstate Commerce Commission Report, 1904, p. 104. ^23) "National Consolidation of Railways," p. 4. 448 The Railways, the Trusts, and the People. given more than five years in which to make the changes demanded by the act. Many railroads paid httle or no attention to the law for a number of years, and by the end of the period granted by the law it was found that "certain railroads had not equipped 2 percent of their cars in that whole period." (Ind. Com., IV. 33-) A two years extension of time was granted the delinquent railroads in 1898, but at the expiration of this extended time thousands of cars were being used in violation of the law. In 1903 the Interstate Commerce Commission in desperation lodged information with the proper district attorneys of violations of the act by a number of railroad companies, including such well-known and prosperous railroads as the Rock Island, the Wabash, the Southern, the Chicago, Milwaukee and St. Paul, and the Illinois Central. In its report for 1903 the Commission says: "The railroads have now had ten years to put their equipment in condition to meet the requirements of the law, and it should be complied with in every detail. The violations which have been reported are but examples of widespread neglect. Our inspectors report that there is hardly a freight yard in the country in which men are not continually compelled to do the very thing which the law was designed to prevent; that is, go between the ends of cars to couple and uncouple."" In its report for 1904 the Commission states that over 31 percent of the cars inspected were still defective with respect to the requirements of the law, and names 7 companies that have paid money fines for violations of this act during the year and 20 companies against which actions for such violations are pending. The requirement that freight trains be equipped with sufficient air- brakes to enable the engineers to control them has been similarly dis- obeyed; and even where it has been literally complied with the nature and consequences of the compliance have in some instances exhibited an utter disregard of the spirit of the law. On the Pennsylvania Rail- road for instance, where the letter of the law is followed and the for- ward half of the train is air-braked, on May nth and again in July, 190S, freight trains, equipped according to the 50 percent requirement but not according to the requirements of safety, buckled, throwing cars over onto another track. In the May accident one of these cars happened to be loaded with 50,000 pounds of dynamite, and a moment after the buckling it was struck by a passenger express. The dynamite was exploded by the collision, demolishing the Pullman cars, killing more than 20 persons and injuring a much larger number. The July accident was similar in circumstance except that the dynamite was absent, and by miraculous good fortune only the passenger engineer was killed. The provision that railroads engaged in interstate commerce should make reports of all accidents to employees and passengers to the Inter- state Commerce Commission was made a law in 1901. There are two ' big holes here. One is that the railroads are the occasions of a great (") Report of Interstate Commerce Commission, 1903, pp. 85-6. Management. 449 many accidents to other persons than passengers and employees. Nearly all grade-crossing accidents involve such "other persons." The other is that railroads not doing an interstate business are not subject to the requirement. Thus a large number of those killed and wounded by local roads are never included in the reports to the Commission. The Commission includes in its reports as many of the accidents to "other persons" as are voluntarily reported by the railroads. This law seems to be as poorly observed as the other laws relating to safety. The Commission says : "On one road alone in a period of three months there were over 300 casualties, which the manager failed to report until the Commission, having obtained the information from other sources, inquired about them, altho in each of the three months the reports of the railroad referred to were sworn to, as full and com- plete, by an officer of authority. Another road failed to report a par- ticularly bad accident in the month of September last, in which 23 lives were lost, and it was only after the Commission called the company's attention to the matter that a report was furnished — nearly a month after the time when it was due. As the regular report first sent was sworn to as an account of all accidents, and as no proper explanation was made of the failure to report the accident in question, this case also has been referred to the proper district attorney for prosecution."^ These facts go far in revealing the spirit as well as portraying the policy of many of our railroads, and that spirit dominates them in their relation to the courts and the public as well as to the Com- mission. "Under the present system," says the Outlook (Editorial, July 29, 1905), "the public is generally completely in the dark as to the real cause of any but the most serious accidents. It is to the advantage of the railroad officials to conceal the results of any investi- gation that they may make of accidents occurring on their roads, and an inquiry by any local body is very likely to be biased by the immense influence which the railroad is able to bring to bear upon it." This is a state of things — a spirit and policy of management with its resultant disasters — which does not, and, in all reason, could not exist under real public ownership and operation. Our railroad slaughter goes on with a surprising regularity and a shockingly steady increase in recent years, not merely in the totals but in the proportions. We have seen how the railroads of the United States compare with those of other countries in the accident data for the latest year in respect to which full returns are available, now let (^) I. C. C. Rep., 1903, p. 99. And again the next year (1904, p. 103) the Commission says: "Many inaccurate and incomplete reports are received, deaths and injuries being entirely omitted from sworn statements. The extent of this omission may be inferred from the fact that 64 railroads admitted havmg omitted to report accidents after their attention had been called to them by the Commis- sion. These omissions amounted to a total of 109 deaths and 226 injuries during the year ending June 30, 1904. It is hardly to be assumed that knowledge of all the accidents that occur throughout the entire country can reach the Commission through the press and from other outside sources. It is therefore to be fairly in- ferred that many accidents are not reported and do not come to the knowledge of the Commission." 450 The Railroad Problem. us glance for a moment at the facts that indicate the movement or trend of railway history in respect to railway accidents. Belgium with a vigorous increase of railway business and with the densest population in the railway world, has steadily decreased the number of victims in proportion to the volume of travel. In 1874 the accidental fatalities on the Belgian state railroads were 108, while the total number of freight and passenger train-miles was 14,236,605. In 1903 the fatalities numbered 58 and the train-mileage was 39,8^,724. So that, with an increase of 180 percent in train-mileage and 309 percent increase in the number of passenger journeys, the Belgian railway management has been able to secure a reduction of 46 percent in the number of slaughtered. In the same period Great Britain has made a record more irregular but almost as good. One passenger in SJ4 millions passenger journeys was killed in train accidents in 1874, and in 1900 it was one in 71 millions. During this period, however, the ratio had been down to one in 150 millions, in four different years, and the average was not far from one in 50 millions. These figures are for train accidents alone. In the United States we can not go back so far for our comparison because reliable interstate commerce figures are not available for the period prior to the work of the Interstate Commission. Taking 1890 and 1904 we find that while business has increased 79 percent, fatalities have increased 59 percent, and injuries 190 percent. Since 1895 there has been an almost steady increase in the proportion of passengers killed to the number carried, and the proportion of passengers injured to those carried has increased from that year 61 percent. The killing of em- ployes, which the safety-appliance act was primarily designed to reduce, was at the rate of i in every 447 in 1898 when the law was supposed to go into efifect. This had increased to i in every 399 in 1900, the limit of the time extension, and has risen to i in every 357 in 1904. The latest report shows that there has been no change for the better, but a decided acceleration of the movement already noted. There is an increase in the number of accidents in proportion to the amount of business done. The year shows the greatest killing and wounding of employees in proportion of the number employed that has ever been re- ported by the Commission. "The increase in the number of deaths to passengers in train accidents in 1904 over 1903 is 64 J^ percent" (I. C. C. 1904, p. 97). These facts in spite of all that has been hoped for from the workings of the safety appliance law, and after all the warnings and rec- ommendations of commissions, and all the enactments of legislatures and awards of courts, and all the indignation and protests of citizens, numerous and emphatic for the past ten years, compel us to ask whether after all the motive and aim of railway management are not chiefly at fault. A railway manager has two things to do, and he puts either one or the other to the front. Under public ownership or effective public control the manager must first make the service safe to the public, and after that make it profitable if he can. In this country he must first make The Rate Question. 451 the service profitable to the company, and then make it safe to the pub- lic if he can. The results are obvious and appalling. Chapter XXVII. THE RATE QUESTION. As explained in Chapter XXI, the fundamental rate-question is the motive and policy of the railway management, yet to a large extent public and private railways are guided by the same considerations in the making of rates. Both consider the volume of business, the direction in which the freight moves (that is, whether it moves in the same direction as the bulk of the traffic or in the opposite direction in which the cars are running empty to a greater or less extent), the value of the article, its bulk and weight, the degree of risk attending its transportation, the special facilities or equipment required, the analogy with other articles in the classification, the competitive elements in the case, the operating expenses and fixed charges to be met, the rates necessary to permit the article to move, etc. The unities are great, but the differences are still greater. 1. The first and most important difference between the private and public systems of rate-making is, that Government rail- ways are impartial in their treatment of shippers, while private railway rate-making is honeycombed with favoritism. 2. Another difference closely linked with the first is that pub- lic rate-making is open, while much of the rate-making on our private roads is secret. 3. A third difference is that public railways make lower rates than private railways in the same country and under similar conditions otherwise than in respect to ownership and control. This tendency results from the fundamental difference of aim between the two systems. Private monopoly aims at divi- dends for stockholders; public ownership aims at service for all. A normal public institution aims at the public good ; while a normal private monopoly aims at private profit. It serves public interest also, but such service is incidental, and not the primary purpose. It serves the public interest so long as it 452 The Railways, the Trusts, and the People. runs along in the same direction and is linked with private profit; but when the public interest departs from or runs counter to the interests owning or controlling the system, the public interests are subordinated. The conflict between public and private interest is specially- strong in the matter of rates. The rate-level that yields the greatest profit is much higher than the rate-level that affords the greatest service, or the greatest service without deficit ; and since private monopoly aims at profit, it seeks the higher rate- level. Public ownership aiming at service, not at profit, gravi- tates to the lower rate-level where traffic and service are greater. The accompanying diagram with the explanation following it will make the matter very clear."^ /« £ C ^ f «\^. 7» \ v 'V Sc \ \-\ io \ l\^ ^ V ^^ so /!iTt.l<,t\,^frtit\r/>rvftt "^*^ H A '^-^-cent fare we would pay if a similar percentage of reduction had occurred her.e cent or 15 percent. In some cases the traffic curve becomes concave toward the left as it nears t:he zero level, "while in other cases it might be concave toward the northeast and strike the zero line at a great distance to the right. The Rate Question. 455 as in Glasgow. The reduction in Glasgow is really more than 50 percent, because the people are riding considerably greater distances for the average fare now than for the old average fare under the company management. According to Baker's Manual of American Waterworks, the charges of private water companies in the United States average 43 percent ex- cess above the charges of public waterworks for similar service. In some states investigation shows that private water rates are double the public rates. For commercial lighting Prof. John R. Commons says that private companies charge 50 to 100 percent more than public plants. We could offer many other illustrations of the law that public owner- ship tends to lower rates than private monopoly, but this discussion may be sufficient to indicate the complexion of the facts. "But," you may say, "is not the average freight rate in the United States lower than anywhere else in the world? How does this agree with your theory that public railways make lower rates?" In the first place it is not contended that public railways in any given country must necessarily make lower rates than the railways of another country, whether public or private. It is only affirmed that public railways tend to make lower rates than private railways in the same country and under similar conditions. The volume of business,' the length of haul, the character of the traffic, the relative costs, etc., vary greatly not only as between different countries but as between different parts of the same railway system. Mr. Fink, who was one of the highest railroad authorities America has produced, in his report of the Louisville & Nashville road for 1875, proved that the average cost per ton-mile varied 700 percent on the different branches of that system under the same management. The ton- mile cost on one line was eight times as much as on another line of the same system ; so it is clear that when all the factors are taken into account we cannot draw any definite conclusion as to economy or efficiency of management or fairness of the rate-level through a comparison of average freight rates. It is necessary to consider the influence of grades, capitalization, cost of fuel and iron, density of business, and many other elements which together make up a problem too complex to justify any definite inference from average rates. Under the general average freight rate of the United States lie hidden many things which deprive it of all right to be used 456 The Railways, the Trusts, and the People. in comparison with European rates. There are many personal and unjust discriminations which bring down the average, and low rates between competitive points/ with very high rates between local points, in many cases almost as high as the rates in the old stage-coach days — rates just low enough to keep business from being done by team instead of the railway." The railroads of this country carry enormous masses of low- grade freight like coal, iron, lumber, stone, etc., and the aver- age haul of freight per ton in the United States is 244 miles" against 78 miles in Germany and 45 miles in Belgium. A long average haul very greatly reduces the average rate per ton-mile because the terminal expenses and most of the general charges are the same, no matter what the length of haul may be. Wellington says the terminal and general charges are 30 percent of the total cost. If the terminal expenses amount to 20 cents per ton, an average of 40 miles would give half a cent for each ton-mile for terminal expenses, while with an average haul of 240 miles the terminal expense for each ton- mile would be less than one-tenth of a cent. As the terminal charges cut a much larger figure in Europe than in this country, there is reason to believe that the actual average transporta- tion charge in the United States is not really as low as in Bel- gium or Germany if the effect of terminal charges in relation to the average haul is properly allowed for. This proves noth- ing in favor of state ownership, for wages in Europe are much lower than in this country, and other conditions are too dis- similar to make it safe to compare the average rates. One thing is clear, however, namely, that underneath our average rate grievous iniquities are nestling which rob it of all honor (3) Our railways are doing a considerable amount of business at a loss. Presi- dent Ripley, of the Santa Fe, says that Armour beef is carried below cost. Presi- dent Tuttle, of the Boston & Maine, says that millions of bushels of corn are car- ried at 2 mills per ton-mile, which is less than the cost of operation, to say nothing of fixed charges. (Sen. Com. 1905, pp. 915, 925.) General Dodge, another prominent railway official, said a few years ago: "To my certain knowledge the Union Pacific road, of which I am a director, is doing a large amount of its business now as competitive business at a loss, and they have not the nerve to stand up and refuse it, because they are fearful that some other road will get it." (*) See the investigations of Prof. Commons, published in the Springfield Re- publican during the discussion of the Boston and Albany lease in 1900. Also James I,. Cowles, "General Freight and Passenger Post." (^) Prof. H. C. Adams, statistician for the Interstate Commerce Commission, "Railway Mail Pay," Part II., p. 446. The average haul was stated as 139 miles, but Prof. Adams explains that this is the average haul on the average route, and a Ion may go over several routes. On page 69 of the I. C. C. statistics, 1904, the average haul per ton on the average railway is given as 133 miles, while the aver- age haul considering all the railways as one system is stated to be 244 miles. The Rate Question. ^cy and forfeit the pride we might rightly feel if our rate could be shown to be really low after due allowance for all the ele- ments involved, and if it did not cover such an ocean of in- justice, fraud, discrimination and violation of law as our pres- ent ton-mile rate does cover. If, regardless of the facts behind our average rates and the need of careful weighing of the details in each case, the reader still believes it fair to make comparisons of average rates, he will see from the data given in the accompanying table that such comparisons on the whole are quite as favorable to state ownership as to private railways. AVERAGE TON-MILE AND PASSENGER-MILE RATES (in cents). Average ton-mile rate. United States (private) 78 Germany (state) 1.40 Austria-Hungary ( m^ o s 1 1 y state) 1.50 Belgium (state) 1.25 Switzerland (state) 2.56 France (private) 1.55 Great Britain (private) 2.50 Norway (state) 2. " (private) 2.6 Denmark (state) 1.44 The ton-mile rate for Belgium is estimated, as are all the figures for Great Britain. The British railroads do not keep any complete sta- tistics even for their own information. The average haul for freight is estimated for the railways considered as one system, except in Aus- tria-Hungary, where I did not succeed in getting such an estimate, and have to use the reported average haul, which is the average'haul on the average railway system. There is a good deal of difference between the two unless the railways are substantially all in one system. For example, in the United States the average haul on the average railway is about 130 miles, while the average haul on the railways considered as one system is 244 miles per ton, many of the shipments traveling on more than one line. In Germany the figures are 64 miles and 78 miles, respectively; in France 86 miles and 102 miles, according to the best estimates I have been able to obtain. In view of the fact that the European ton-mile figures in- clude the express as well as the freight, and also often in- verage Average Average reight passenger passenger haul. rate. haul. 244 2.02 30 78 1.2 IS 65 I. 2S 45 •7S 14 43 1-3 13 102 1-34 21 2.25 12 1.16 1.16 .76 458 The Railroad Problem. elude collection and delivery in the case of freight as well as in the case of express matter, it is clear that no reliable infer- ence can be drawn in our favor by a comparison of the average ton-mile rates. If any such inference were fair, the fact that the English ton-mile rate is estimated by her own experts as double the ton- mile rate on the Belgium state railways, would prove the case for public management as clearly as the fact that the Austrian ton-mile rate is substantially double our average rate, would point the other way. It is manifest that other causes than the form of management affect the rates. Our exceedingly long haul is chiefly respon- sible for our ton-mile rates. Altho the Swiss state management has reduced rates considerably below what they were a few years ago under private management, it has not been able to overcome the short haul and the mountain grades. Considering the length of haul in France, one would think her rates should be lower than those of Belgium or Germany, and they might be if she had public management. The average haul is short in England and the capitalization of her private railways is so enormous that her rates loom high above all the rest. In the case of passenger rates there is a much fairer chance of comparison, and it is greatly against the private roads. Aside from the little nest of mountains we call Switzerland, every comparison favors the state management. In spite of our long passenger journey, double that of Germany or Belgium, our average passenger-mile rate is twice the German rate, and nearly three times that of Belgium." And the differences cannot be explained by any question of wages, for the English pas- senger rate is more than double that of Germany, tho rail- road wages in Germany are higher than in Great Britain. 4. Another important difference between public and private railways in their system of rate-making is that public railways interpret the famous rule of charging "what the traffic will bear" to mean that the charge must not be higher than the traffic can reasonably endure ; whereas the private railways far (*) Belgium claims to have the cheapest tourist tickets in the world. I have before me an advertisement of the Belgian service for 1904. It says, "The Cheap- est Railway Fares in the World, 2530 miles for $2.30. Season tickets good through- out the whole Belgian State System. Available 5 days. Season tickets available 15 days $7.60." The first ticket figures down to less than one-tenth of a cent a mile, and the second is calculated on a possible one-third of a cent a mile. The Rate Question. 45^ too often interpret the rule as if it meant that they should charge all the traffic can stand/ 5. The fifth and one of the most important divergences in the methods of public and private railways relates to the ques- tion of equalization. Both systems tend strongly toward the equalization of rates, but in the private system this tendency is unchecked by any consideration of the waste of industrial power that may be caused by the absolute and injudicious equalization of rates under the conditions of competitive com- merce; while public railway managements, taking a broader view and considering not merely the amount of tonnage they can get and the growth of the transportation business but the whole range of industrial and social interests involved, are careful nOt to carry the equahzation of rates so far as to lead to unnecessary waste of industrial power. President Tuttle of the Boston & Maine railroad says that the rail- roads believe it to be their duty in the interests of their customers not only to abridge but, so far as possible, to eliminate distance and over- come the natural economic disadvantages under which the industries of any particular community may labor. So cotton is carried from Mem- phis to Lowell, Mass., at the same or even at a lower rate than from Memphis into North Carolina ; and cotton cloth is carried from New England to the West at rates that permit it to compete with cloth from the southern factories. Wire is carried from Worcester, Mass., to Chicago at the same rate as from Pittsburg to Chicago. Boston is flooded with potatoes from Michigan in competition with potatoes from the neighboring farms of Maine. The rates on paper from Millinocket, Maine, 1500 miles to Chicago are made the same as the rates from mills within 500 miles of the western metropolis. Shoes are carried from New England 1400 miles to St. Louis at the same rates that are made for a haul of 20 miles.' ' The idea of equalizing producers so far as reasonably possible in the market is an excellent one and is a fundamental principle of the policy of the government railways of Germany, Belgium, Switzerland, New Zealand and Australia; but the public roads do not try to equalize pro- ducers of one section in markets that ought to be supplied from other sources of production in the due economy of industrial power. They would not adjust rates so that raw corn would be hauled from the West to eastern mills, and the products hauled back to the West ; nor so that garden tools would come from Iowa to New England to be sold under the very walls cf Massachusetts implement manufacturies ; nor so that furniture men in Michigan could compete in New England markets on {') See chapter on Chaos of Rates. (') Sen. Com. 1905, pp. 971, 923, 924, 975, 919. 460 The Railways, the Trusts, and the People. equal terms with local factories while New England furniture is hauled to Michigan at rates enabling it to compete with the Michigan product ; nor would they make such through rates with the steamer lines that a train-load of bananas would go from New York to Boston while another train-load passing it en route would carry bananas entering at Boston to the markets of New York. This case of the passing train-loads of bananas was described to me by one of our leading railroad presidents and defended by him on the ground that such duplications of transport make business and keep prices fair and even in both markets. The fact is that the railroads are after tonnage and do not care how great the waste of economic force may be if they can get the business. The motive for equalizing rates in the case of private railways is tonnage and profit for the railways, and so they often go far past the reasonable limits of the principle of equali- zation under present competitive conditions. As Prof. Ripley, of Har- vard, says, it is an economic waste to bring garden tools from Iowa to Massachusetts and to carry from eastern mills to the Pacific Slope goods which should be manufactured in western mills.' From 1889 to 1903 our freight business measured by ton-milage increased 15 times as fast as population, and this enormous increase, of which the railways are so proud, is due in part to an excess of duplicate and long distance traffic in violation of the fundamental and all important principle of economiz- ing social and industrial force. Our railroads make no proper efifort to build up local manufactories and do away with the economic waste involved in needless transportation. They should like nothing better than to have all the goods and products used in California transported from the East, and all the goods and prod- ucts used in the East transported from the Pacific Slope. If our industrial system was cooperative instead of competitive, it would be possible to carry the equalization of rates to the limit without involving waste of power; for a cooperative management would not ship goods long distances when they could be more economically pro- duced near at hand. A society making a new start on an unsettled island might very well adopt the postage-stamp principle for freight and passenger rates and so eliminate or equalize the burden of distance. It is a burden that has no relation to individual merit and therefore, according to ethical principle, ought to be equalized. No ideal system of rate-making short of this has ever been conceived so far as I know. But under present competitive conditions the attempt to establish such a system or even make a close approach to it entails most serious disturbances in the values of real estate and established industries, and leads to enormous waste of industrial power. In the famous milk case the railroads contended that it was right to make the same rates on milk within 430 miles of New York City. But, as Professor Ripley -says, if milk goes to New York from points near Buffalo while Buffalo gets her supply from places many miles east of O Sen. Com. 2324-5, 2339-40. The Rate Question. 461 those that ship their dairy products to New York, it is clear that super- fluous transportation is incurred." A rate system that results in such enormities is absurd upon its face. Under a cooperative system where intelligent direction would determine the destination of shipments with due regard to the common interest, no such results would follow from the equalization of rates. But in the midst of our competitive industries equalization of freight rates would be an economic disaster. The nearest approach to the ideal system that is reasonably possible now is a tariff built on the zone principle, or the prin- ciple of gradually decreasing the ton-mile rate as the distances increase, with special rates adapted to the circumstances of particular cases, equalizing producers and shippers wherever it is possible without incurring wastes and losses that over- balance the benefits secured by simplicity and equality. This is the policy of the state railways of Austria, Germany, Bel- gium and New Zealand, and to a greater or less extent this policy is recognized by all State railway systems. Prof. Hugo Meyer and others declare that government con- trol of rates involves a distance tariff. As we have seen in Chap- ter XXIII this is very far from the truth. The distance princi- ple is recognized as one of the basic elements of rate-making by both public and private roads. The equalization principle is also recognized by both systems, the only difference being that the public system aims to apply both principles with reference to the public good, while the private roads apply both principles with reference to dividends. As President Stickney says : "In rate-making the only question (private) railway managers con- sider is what rate will produce the greatest revenue." Public railways apply the equalizing principle much more equally and equitably than private railways. Public roads would not make a $1 rate from the East to San Francisco to meet competition by water, and a rate of $2.30 on the same goods to Salt Lake City, as our private railways do." (") Sen. Com. 2325. (") Sen. Com., pp. 3335-6. See also p. 2155, where Senator Newlands put the question to President Ramsey, of the Wabash Railroad: "Suppose the govern- ment concluded to own these railways, and should organize a bureau of transporta- tion in connection with the PostoiHce Department and put at its head one of the best traffic managers of the country — yourself, for instance. And leaving the entire railway service just as it is, organized as it is, with its traffic managers and station agents and employees, do you think if you were charged with the control of such a bureau and had a free hand in its administration, that you would haye much diffi- culty in managing the entire railway system of the country and making it support itself?" Ramsey: "I would guarantee it." Newlands: "Would you have to raise the rates in order to do it?" 462 The Railroad Problem. The German railways are criticised by Meyer for allowing large masses of freight to go by river and canal. But why should railroad transportation be congested and burdened with traffic that can be carried far more cheaply by water ? No one would think of hauling masses of coal or iron from the East to San Francisco, or grain from Chicago to Buffalo, by means of caravans of wagons when the goods could go by water at a fraction of the cost. Nor should we think of cutting railroad rates below the cost of transportation as we do in many cases, thereby increasing the rates on other shipments, in order that goods which ought to go by water may be carried by our rail- roads in order to gratify their overmastering passion for ton- nage. 6. One more vital difference between public and private railways in respect to the making of rates may be referred to here. As we have seen in Chapter XXIII, important conces- sions are made by public roads to education and to farmers and working people, while our private railways make no reductions in such cases, but grant their concessions to the Standard Oil, Beef Trust and other powerful combinations of capital. In Great Britain, where the private railways grant concessions to working people, they were forced by law to adopt this policy. They found it profitable and have gone beyond what the law requires. Chapter XXVIII. RAILWAY EMPLOYES. Public railways treat employees better than private railways.^ The workers are partners in public railways, and part owners are naturally treated with more consideration than employees Ramsey: "No, I would simply equalize them." President Ramsey went on to say that he would remove discrimination by bring- in" up the rates for commodities on which the present charges are too low and re- ducing rates that are too high. On the same principle he would have to reduce the rates to Salt Lake City, Denver, Spokane, and other places throughout the country that are now required to pay not only their own legitimate freight rates, but also the losses incurred by carrying trainloads of stuff to competitive points below the cost of transportation. (^) It is important to note that this statement relates to public railways, not government railways. As we have seen in Chapter XXIII., when speaking of Rus- sia, a government railroad may not be a public road at all, but an example of one form of private ownership. Just so far as the government is private property, the railways in its possession may be private property and administered in the interest of its owners rather than in the interest of the public. Raihvay Employes. 463 who are not shareholders. Public managements also recognize the elevation of labor as in itself a public purpose quite as im- portant as transportation at low cost ; and aiming at the public good rather than at profit, they naturally endeavor to improve the conditions of labor so far as reasonably possible. Wages are higher and hours shorter than on private railways in the same country, or even on private railways in more advanced countries in some cases. More attention is given to safety of employees and better provision made iov accident relief, sick benefits, old-age pensions and care of dependents in case of death. Our private railways take the least care of life and make the most strenuous efforts to escape liability for injuries to employees. Much more attention is given to the careful selection and training of railway men by the best public man- agements than by our private managements. The insecurity of employment is far greater on our railways also, and rea- sonable provision for the fair settlement of difficulties is far less. Trade-unions among railway men are strongly encouraged by the best public systems, and vigorously opposed by private railroads. Public railways are much more considerate and equit- able in their dealings with employees, and the best systems have definite provisions for the arbitration or impartial judicial de- cision of disputes between the workers and the authorities over them. Our railroads refuse to arbitrate. They buy their labor like a commodity at the lowest market price, just as they buy their coal and iron at competitive rates. They over-work their men, adjust their duties and their pay with little regard to equity, and exercise the power of arbitrary discharge; and if the workers strike in order to get justice or a fair consideration of their demands, the railroads use the injunction and the black- list, and even the Federal troops if need be to enable them to retain their mastery, and persist in their refusal to give the men any voice in the control of the great industry into which they put their lives, or even in most cases so much as an oppor- tunity for frank and friendly discussion of grievances. It is claimed that wages on our railways are higher than on public roads, and that the difference is due to the fact that our roads are privately owned. Neither part of this proposition is true. Raihvay wages here are higher than they are on some state roads, but not so high as on other public systems, those of New Zealand and AustraUa, 464 The Raihvays, the Trusts, and the People. for example. The wage level on the German roads is much higher than on the private railways of England/ altho the general wage level in Germany is considerably lower than that of England. There are employees that work on the English railways at 40 cents a day, and over 40% of them work for 80 cents or less. Many Britishers are working for the private railway companies of that country 70 hours a week for a weekly wage of $3.36, and the average pay of railway men is but $290 a year,' which is less than is paid to domestic servants with us, including the value of their board and lodging. It is clear that our high wage rate is not due to private ownership. If instead of looking at average wages we examine the distribution of the wage fund, we shall find most inequitable irregularities in the compensation of the different classes of workers. The president of one of our big railways may receive a larger salary than the president of the United States ; while many a railway worker in the South receives less than so cents a day. Senator Depew, when president of the New York Central, is said to have received a salary of $100,000; while the United States Commissioner of Labor reported a few years ago that the average annual earnings in some of the most unsteady and poorly paid classes of railway labor was only $124 to $212 a year;* and to-day the average (^) Edwards, "Railway Nationalization," pp. 155, 215. This English writer says: "Tho the conditions of employment of most classes of German workers are considerably worse than in the case of similar classes in England, the state railway servant is certainly better off than our English railway workers. From the Appen- dix it will be seen that not only are the Prussian wages better than here, but large allowances are made for houses, and every workman and his widow and orphans are entitled to pensions as civil servants." The details of German wages are given in the Appendix referred to. Considering the purchasing power as well as the amount of the wages paid, the wages paid the mass of railway workers in Germany is not only far superior to that of England, but is little, if any, inferior to the compensation paid the mass of men performing the ordinary sorts of labor on our railways. C^) Edwards, p. 107. (*) Fifth Annual Report, Commissioner of Labor, pp. 89, 96, 100, loi. 140, 143, 161. The average earnings of the 23,699 brakemen on the 60 leading railroad sys- tems is stated to be $212. For flagmen the average annual earnings were $244, with daily pay averaging on some systems, 16 cents, 72 cents, 77 cents, 8s cents, 89 cents, 93 cents, 97 cents, $1, $1.02, $1.04, $1.08, $1.15, $1.24, $1.25, $1.35, $1.39, and so on up to $1.99, the highest daily wage on any of the systems reported. For the 90,104 laborers on the 60 railways the average earnings were $124 per year. The annual earnings for switchmen were $264; for firemen, $337; for tele- graph onerators, $235; for baggagemen, $311, etc. Over 45 percent of the brake- men and flagmen earned less than $100 a year; nearly 45 percent of the telegraph employees were in the same class, and 59 percent of the construction hands; 53 percent of the employees on wharves, docks, etc.; 73 percent of the lampmen, light tenders, etc.; 57 percent, of the miners and quarrymen; 86 percent of the wood and coal handlers. These low earnings are explained in part by the fact that many of the men did not work the whole year through. Many railroad men, especially those em- ployed as trackmen and unskilled laborers, have to lose much time in waiting, and others work a part of the year for a given railway and another part of the year for some other road or in some other industry. But these migrations and interrup- tions of employment by no means fully explain the low earnings of large bodies of railway men, as clearly appears from the records of the average daily rate of pay — $1.13 for flagmen, $1.26 for laborers, $1.43 for telegraph operators, $1.51 for baggagemen, etc. On pages 160-1 the Commissioner says: "On the 60 roads there were em- ployed 224,570 individual men whose services and pay could be reduced to actual time (employees paid by the mile, trip, piece, contract, or commission, being ex- cluded). They were employed on an average 147 days each and they received $243 average actual earnings for the year employed." If they had worked six days a week throughout the year at the same rates of pay they would have earned an average of about $500 a year. Railway Employes. 465 earnings of the whole milHon and a quarter of employees, omitting the higher officers, is only about $600.° Trackmen are reported by the Interstate Commerce Commission as receiving an average daily wage of $1.22. On certain southern roads they receive only 47J4 cents a day, and from 50 to 80 cents a day is as high as is paid for this labor on many other roads. The variations are very great and extend throughout the ' service. Perhaps there is more uniformity in the pay of locomotive engineers than in that of any others. To be a locomotive engineer is to get an average wage of $3.75 a day, yet Mr. Arthur, the late chief of the Brotherhood of Locomotive Engineers, told of cases where engineers could not get more than $35 or $40 a month ; and Mr. Wilson, head of the Railway Trackmen, tells of locomotive engineers who have accepted positions on the track force at $1.25 a day. An examination of the pay-roll of the Prussian state railways reveals no such irregularities in the amounts paid men of the same class, and no such startling inconsistencies between the amounts paid men of different classes. The presidents are paid $2520, and they are not permitted to spend their time promoting trusts, insurance companies and other outside affairs, but must give it to the service. Some of the poorest paid labor works for 80 cents a day. None are reported paid as little as 47^2 cents. Officials are paid less and common labor more on public roads than on private roads under similar conditions otherwise than as to ownership. A comparison of the $560 to $600 wages paid by our great railways with the compensation received by public employees, such as our policemen and postal carriers, clearly indicates the difference of pohcy in respect to labor under the two systems. Some years ago at a meeting of the Twentieth Century Club in Boston, after a lecture on railways by President Hadley of Yale Uni- versty, I was called on by the president of the club, and ventured the suggestion that if the railroads were managed in the public interest, a large part of the profits that now go to pay dividends on inflated capital would be devoted to an enlargement of the compensation paid the rank (=) The Interstate Commerce Commission reports the average pay of General Officers at $io-4S per day, while that of section foremen is $i.6S, and many of the common wori