CORNELL 
 
 UNIVERSITY 
 
 LIBRARY 
 
CORNELL UNIVERSITY LIBRARY 
 
 3 1924 101 151 870 
 
Cornell University 
 Library 
 
 The original of this book is in 
 the Cornell University Library. 
 
 There are no known copyright restrictions in 
 the United States on the use of the text. 
 
 http://www.archive.org/details/cu31 9241 01 1 51 870 
 
THE RAILWAY PROBLEM 
 
 WITH MANY ILLUSTRATIVE 
 DIAGRAMS 
 
 A. B. STICKNEY 
 
 ""^^^^ 
 
 ST. PAUL, MINN. 
 
 D. D. MERRILL COMPANY 
 
 i8gi 
 
Copyright, 1891, 
 Bl D. D. MERRILL COMPANY. 
 
 All rights reserved. 
 
 The Riverside Press^ Cambridge^ Mass.j V. S. A 
 Electrotyped and Printed by H. O. Uoughtou & Ga 
 
PREFACE. 
 
 In the report to Congress, the Senate select com- 
 mittee which reported the act commonly known as 
 the Interstate Commerce Law says that the testi- 
 mony taken, the statements received, and the inter- 
 est everywhere manifested in its investigations have 
 " convinced the committee that no general question 
 of governmental policy occupies at this time so prom- 
 inent a place in the thoughts of the people as that 
 of controlling the steady growth and extending in- 
 fluence of corporate power, and of regulating its 
 relations to the public; and as no corporations are 
 more conspicuously before the public eye, and as 
 there are none whose operations so directly affect 
 every citizen in the daily pursuits of his business or 
 avocation as the corporations engaged in transporta- 
 tion, they naturally receive the most consideration 
 in this connection." 
 
 Recognizing the truthfulness of the committee's 
 statement, the author has ventured to prepare this 
 volume as his contribution towards the solution of 
 the problem. The arguments and opinions are pre- 
 
IV PREFACE. 
 
 sented, without pretensions, for what they are worth. 
 
 Let the public read, judge, and criticise them. No 
 
 claim is made for this book on account of literary 
 
 excellence. 
 
 THE AUTHOR. 
 
 February, 1891. 
 
/ CONTENTS. 
 
 CHAPTER I. 
 
 FAQE 
 
 Inteoductoky Statements 1 
 
 CHAPTER n. 
 Eba of Construction 8 
 
 CHAPTER III. 
 Method op Railway Management ......... 18 
 
 CHAPTER IV. 
 Effects of Discbimination 27 
 
 CHAPTER V. 
 Competition 36 
 
 CHAPTER VI. 
 How Tabiffb Gbew 45 
 
 CHAPTER Vn. 
 Competitive Tabiffs 58 
 
 CHAPTER VIII. 
 Railway Passes 72 
 
 • CHAPTER IX.- 
 Faibness of Legal Rates 76 
 
vi CONTENTS. 
 CHAPTER X. 
 A Legislative Dulogue 89 
 
 CHAPTER XI. 
 Struggle of the Mahagbks 98 
 
 CHAPTER XII. 
 Fundamental Pkinciples 114 
 
 CHAPTER XIII. 
 The Senate Committee 122 
 
 CHAPTER XIV. 
 The Interstate Commerce Act 131 
 
 CHAPTER XV. 
 Fixing the Rates 140 
 
 CHAPTER XVI. 
 Discrimination by Parallel Railways 154 
 
 CHAPTER XVII. 
 Railways are Agents of the State 162 
 
 CHAPTER XVIIl 
 Railways as Common Carriers 173 
 
 CHAPTER XIX, 
 Making Standard Average Rates 178 
 
 CHAPTER XX 
 Watered Stocks 196 
 
 CHAPTER XXI. 
 The Stock Exchange 202 
 
CONTENTS. vii 
 
 CHAPTER XXII. 
 Enforcing the Bates 204 
 
 CHAPTER XXIII. 
 State or Nation 214 
 
 CHAPTER XXIV. 
 Concluding Reflections 219 
 
 APPENDIX. 
 
 Earnings and Rates of Representative Roads, illus- 
 trated BY Diagrams and Legal Decisions .... 231 
 
 It is the Duty of the Sovereign to provide Highways . 236 
 
 Railroads are Public Highways 239 
 
 Whoever builds or operates a Railroad performs the 
 Functions of the Government under a License or 
 Authority from the Government 241 
 
 The Revenues Collected by Railroads are Tolls, and 
 
 Tolls are Taxes 242 
 
 Contra 246 
 
 Tolls are Taxes 247 
 
 Contra 248 
 
THE RAILWAY PROBLEM. 
 
 CHAPTER I. 
 
 mTEODTJCTOEY STATEMENTS. 
 
 Much has been written about that class of legis- 
 latiqn which seeks in a measure to control the traf- 
 fic of railways, commonly known as the " Granger 
 laws." 
 
 As to the utility of these laws, or the correctness 
 of the principles upon which they are based, there 
 seems to be a wide divergence of opinion, apparently 
 occasioned by the two widely differing points of view 
 of the writers, — one class considering such, laws as 
 little less than confiscation of property, while the 
 other regards them as just and necessary measures of 
 self-protection. In the heat of the discussion, the 
 advocates seem to think their opponents are so sel- 
 fish as to be unable to see the rights of others ; while 
 those who oppose the laws regard the advocates of 
 the new legislation as little less than freebooters, and 
 the legislators who enact them as demagogues. 
 
 At times the discussion has waxed so hot that both 
 parties may fairly be accused of having allowed their 
 passions to gain the ascendency over that quality, 
 well-nigh universal among men, which is termed " fair- 
 mindedness." Much of this acrimony, no doubt, is 
 
2 THE RAILWAY PROBLEM. 
 
 due to an imperfect understanding of the facts. Most 
 of the men who denounce legislators enacting such 
 laws as demagogues and scoundrels are undoubtedly 
 convinced that they are ; and this probably would be 
 a just verdict if the laws were, in fact, as wrong in 
 principle or in substance as they think them, or if 
 such legislators were actuated by the motives they 
 assign to them. On the other hand, the " Granger," 
 who denounces the " Monopolists " in such unmea- 
 sured terms, is also usually honest in his convictions ; 
 and if the men he terms " Monopolists " were as 
 guilty of selfishness and greed as he believes them to 
 be, they would justly deserve all his anathemas. 
 
 In order to understand the laws, it is not sufficient 
 to study their text alone, but the evils which they 
 were intended to remedy must be studied, and as far 
 as possible comprehended. This at once opens up a 
 wide range of inquiry. The conditions, legislative 
 and other, under which the railways have been con- 
 structed, the personnel of the builders and subse- 
 quent managements, the character of the services 
 performed by the railways and their methods, as well 
 as the business pursuits of the communities served 
 by the railways and the methods of doing such busi- 
 ness, must be considered. To cover so wide a range, 
 and at the same time keep within a readable space, 
 , will necessitate avoiding, as far as may be, the de- 
 ' tails. In developing the subject, it will be impossi- 
 ble for the writer always to speak with approval, 
 either of the methods of construction and operation 
 of the railways, or of the business or legislative 
 methods of the people ; but as far as he has ability 
 it is the intention to treat everybody fairly, and while 
 criticising what he regards as bad methods or wrong 
 
INTRODUCTORY STATEMENTS. 3 
 
 acts, at the same time to present the conditions 
 which at the time seemed to justify such methods 
 and acts. Admitting in advance his own errors in 
 respect to matters which he may criticise on the part 
 of railway constructors and operators, he will feel at 
 liberty to speak of such acts with more frankness 
 than would otherwise seem courteous. 
 
 In the preface to hip '' History of the Dutch Re- 
 public," Mr. Motley says : " When an unknown writer 
 asks the attention of the public upon an important 
 theme, he is not only authorized, but required, to show 
 that by industry and earnestness he has entitled him- 
 self to a hearing." 
 
 In obedience to this requirement, the writer is led 
 to make the following somewhat personal state- 
 ments : In 1861 he commenced his business career, 
 when quite a young man, as an attorney at law, in 
 Minnesota, one of the so-called " Granger States," 
 where he has ever since resided. At that date there 
 was not a mile of railway in the State, the nearest 
 railway station being La Crosse, Wisconsin. 
 
 In 1871 he first became interested in the construc- 
 tion and operation of railways, with which he has 
 been chiefly occupied since that date. His experience 
 has been in the legal, the construction, the operating, 
 and the financial departments. He participated in 
 the discussions and events which culminated in the 
 first Granger legislative enactments of Minnesota and 
 Wisconsin, and in all the subsequent enactments of 
 Minnesota, and latterly of Iowa. He has been an in- 
 terested student of the judicial inquiries which have 
 grown out of this class of legislation. At the time 
 of writing, his principal business is the management 
 of a railway, and about one half of Iris moderate for- 
 
4 THE RAILWAY PROBLEM. 
 
 tune is invested in railways. On the other hand, 
 while for twenty years his chief occupation has been 
 in connection with railways, yet there has been no 
 time during these years that he has not been finan- 
 cially interested in the ordinary business of the local- 
 ity in which he has lived, and devoted to it more or 
 less attention. Thus he has been interested in farm- 
 ing on a somewhat large scale, in manufacturing, in 
 banking, and in real estate, about the same propor- 
 tion of his fortune being so invested as in railways. 
 
 Recognizing the fact that men's judgments, in spite 
 of their best efforts to the contrary, are usually biased 
 by their interests, the writer makes these personal 
 statements with great diffidence, in order that those 
 who read what he is about to say upon the subject 
 under consideration may have the means at hand to 
 judge for themselves the probable bias of his mind. 
 He would also comply with the duty laid down by 
 Mr. Motley, and show the grounds which should en- 
 title him to a hearing. He can further state that he 
 is unconscious of any existing bias, or of any other 
 desire than to present fully and fairly, as he under- 
 stands them, all the material facts bearing upon the 
 controversy, and to draw such conclusions as these 
 facts may justify. 
 
 During the twenty years since the passage of the 
 first Granger law in Minnesota, his sense of justice 
 has often been outraged by what appeared to him at 
 the time, and still appears, as the arbitrary and self- 
 ish actions of railway constructors and managers, and, 
 on the other hand, by the time-serving policy of leg- 
 islatures and both State and National Commission- 
 ers ; and yet at no time, after the heat of debate has 
 subsided, has it been hard, if not to excuse, at least 
 
INTRODUCTORY STATEMENTS. 5 
 
 to find much in the inherent difficulties of the sur- 
 rounding conditions to palliate these actions. 
 
 During these years he has not been in full accord 
 with the prevailing opinions in railway circles, in re- 
 gard either to the scope and effect of the laws, or to 
 the intentions or motives on the part of the people 
 which induced the laws. The railways have de- 
 manded more from the people than they ought; on 
 the other hand, the people have expected more from 
 the railways than, under the circumstances, they 
 should have done, and more than, in the nature of 
 things, it was possible for them to accomplish. That 
 a few essentially corrupt men have secured election 
 to the halls of legislation cannot be denied, but that 
 the people of the Western States, or any apprecia- 
 ble part of them, are thus corrupt, or would desire, 
 if they could, to confiscate the property invested in 
 railways, is denied. It must be admitted, however, 
 that they belong to a sturdy race, descendants from 
 a long line of sturdy ancestors who have dared to 
 defend their rights. These rights, among which is 
 that to own individual property and receive its 
 proper income, must not be ignored by railway com- 
 panies. 
 
 It will not be difficult, when the conditions exist- 
 ing at the beginning of these Granger agitations 
 come to be examined, to see that railway traffic was 
 then being conducted in such a manner as to destroy 
 a portion of the value of the property of large num- 
 bers of individuals, and the whole value of the pro- 
 perty of certain other classes. Startling as the bald 
 statement must naturally be, these conditions were 
 then admitted to exist, and continue now, to a more 
 limited extent. By the people who suffer from dis- 
 
6 THE RAILWAY PROBLEM. 
 
 criminations they are regarded as the wanton acts of 
 railway officials ; by the railway managers they are 
 regarded as unavoidable, under the present circum- 
 stances. 
 
 In other words, rates between points which are 
 usually termed competitive are so low that the rail- 
 way managers fully realize that to reduce all rates to 
 the same level would result in speedy bankruptcy for 
 the railways ; while, on the other hand, the sufferers 
 from unequal rates point to these low competitive 
 rates, and cannot understand why, if the railways can 
 afford to carry that traffic at the low rates, they can- 
 not carry non-competitive traffic at correspondingly 
 low rates. This discrimination in the matter of rates 
 between different localities and individuals is the 
 point of greatest friction. While it is confessedly 
 building up certain localities and making certain rich 
 men richer, it is slowly and surely sapping the foun- 
 dations of the prosperity of both, the great masses of 
 the people and the railway companies. The object 
 of all Granger laws has been to prevent discrimina- 
 tions by making all rates equal or proportionate, 
 rather than to reduce the amounts to be collected by 
 the railways. As soon as they came to realize by 
 sad experience the enormous power which discriminar 
 tion in the matter of rates conferred upon the man- 
 agers of railways (who after all are but human), in 
 respect to the private business of individuals, it could 
 not be expected that a free people would tamely sub- 
 mit to it. This unrestricted power to discriminate 
 in the matter of rates, lodged in the hands of one 
 man, the manager of say five thousand miles of rail- 
 way; the power, through malice, ignorance, or stupid- 
 ity, to decree which out of say a thousand cities and 
 
INTRODUCTORY STATEMENTS. 7 
 
 villages located on his lines should prosper, and which 
 should not ; which individuals out of say ten thou- 
 sand merchants doing business in those cities and 
 villages should make a profit or a loss, — and if it 
 suited the autocrat's whim, the same man might be 
 in favor one year and under ban the next, — such 
 enormous power over the fortunes of so many should 
 never be lodged in the hands of any human being ; 
 and yet, strange to say, at the beginning of the agita- 
 tion many of the best men engaged in railway man- 
 agement insisted that to deprive them of this auto- 
 cratic power was tantamount to confiscation of the 
 property which they were managing. 
 
 At the proper place in the development of the 
 subject, the arguments put forth in support of this 
 theory will be presented, and they will be found, 
 while not conclusive, to be at least plausible. At the 
 proper time, it will be interesting and germane to 
 the subject to inquire into the significance of the 
 rates commonly called competitive, and see if the 
 word descriptive of such rates is not a misnomer, 
 and whether such rates, instead of being conducive 
 to, are not destructive of, all fair competition. The 
 subject also presents many other questions of in- 
 terest, which will be brought out in their natural 
 sequence in considering the history of the railway 
 business, its relations to the communities, and the 
 conflicts of opinion and interests resulting in the 
 Granger laws. 
 
CHAPTER 11. 
 
 ERA OP CONSTRUCTION. 
 
 The history of railway construction in one Western 
 State is substantially its history in all the others ; 
 hence it will suffice to trace this history in Minnesota 
 only. It is coeval with the settlement of the State, 
 although there was no railway actually completed till 
 1862 (and then only about twenty miles), while-there 
 was a population in 1850 of 6,077, which had in- 
 creased in 1860 to 172,123. The first step of con- 
 struction is always legislative. 
 
 Minnesota was created a Territory in 1849, and 
 among the acts of its first legislative assembly was 
 the granting of charters to railway companies, which 
 was followed at subsequent sessions by laws intended 
 to induce the building of railways. 
 
 In 1856 Congress granted to the Territory large 
 tracts of land to aid in building railways, which were 
 immediately parceled out by the legislature to four 
 or five companies. It should be borne in mind that 
 the population of the Territory at this time (1856) 
 had increased to probably 150,000. It was composed 
 largely of young men, from twenty-one to twenty-five 
 years of age, whose principal occupation was starting 
 "wildcat" banks, dealing in lands and town lots. 
 The future looked bright to men of a speculative turn 
 of mind and in the vigor of youth. The construction 
 of railways, in their imaginations at least, meant al- 
 
ERA OF CONSTRUCTION. 9 
 
 most untold ■wealth, by reason of the increased value 
 of their " city lots." 
 
 Is it wonderful that they were impatient of delays, 
 or that no price seemed too dear to pay for immedi- 
 ate results? These were the first railway builders 
 of Minnesota. They had charters. They had thou- 
 sands of acres of land donated for the purpose by the 
 nation. They had youth, health, and hopefulness. 
 With these assets, but with no money and little ex- 
 perience, they commenced negotiations for the neces- 
 sary capital. The other parties to the negotiation 
 were men of more mature years and commercial ex- 
 perience. To them the situation was not so assur- 
 ing. 
 
 At that time, whether or not the soil and climate 
 of Minnesota were such as would return sufficient 
 rewards for husbandry was a problem. It had not 
 been proven. Her forests were known to contain 
 valuable pine timber, but the Mississippi River could 
 transport that to the limited markets cheaper than 
 railways. The prospects of traffic, from a population 
 of only a few thousand young men engaged for the 
 most part in purely speculative occupations, were not 
 promising. Under these circumstances, the offer of 
 six sections of land, of unknown value, to each mile 
 of railway was not sufficient to tempt capital. The 
 cool-headed men of experience, in addition to the 
 charters and the land, demanded the loan of |5,000- 
 000 of bonds to be issued by the State. These terms 
 being acceded to, work was commenced. A few miles 
 of road were graded, but, owing to a financial panic 
 which intervened, none were completed. Before the 
 crash the State had turned over about $3,000,000 of 
 its bonds, and these were gone beyond recall. The 
 
10 THE RAILWAY PROBLEM. 
 
 grants of lands by Congress had been made condi- 
 tional on completed road, so it was beyond the power 
 of the youthful State to give an absolute title ; other- 
 wise it is quite probable the lands would have gone 
 with the bonds. 
 
 This brings us down to the year 1858-59. During 
 the next two years the State, by legal proceeding, re- 
 covered possession of the portions of partially graded 
 roadbeds and the lands, and again farmed them out 
 for construction purposes, in most cases to the same 
 men as before. In the mean time great financial 
 distress had come upon the State. In 1857 the bub- 
 ble of town-lot speculation burst. Many of the in- 
 habitants who could command sufficient means left 
 the State, and the necessities of those remaining com- 
 pelled them to go into legitimate business. Some 
 went to the country, opened farms, and cultivated 
 them with success, thus demonstrating, what had be- 
 fore been only a theory, that the soil of Minnesota 
 was productive, and therefore valuable. 
 
 But the people were poor. Wheat was worth forty 
 cents a bushel. What little currency they had was 
 derisively termed "shin plasters," being paper issues, 
 utterly worthless outside the State. Between their 
 necessities, on the one side, and their sanguine expec- 
 tations from the railways, on the other, it is not sur- 
 prising that the people were ready to agree to every- 
 thing required to hasten construction. 
 
 Notwithstanding the value of the land grant had 
 now been demonstrated, and by law (1857) exempted 
 from taxation, capital still demanded more. Finally 
 (1866) Congress granted four additional sections of 
 land to the mile. But yet more was demanded. The 
 Constitution must be amended so as to secure the im- 
 
ERA OF CONSTRUCTION. 11 
 
 munity of these lands from taxation. The concession 
 was made (1871). 
 
 Congress granted free right of way through the 
 public lands. Then said Capital, " Congress has 
 granted millions of acres of swamp lands to the State 
 for internal improvements. What internal improve- 
 ments are more useful than railways ? Give us these 
 swamp lands." They were given. " Individuals 
 must donate the right of way through their private 
 lands ; we must have station grounds in the towns, 
 and grounds for shops, etc., free," continued Capital. 
 If the citizens demurred, they were threatened with 
 change of location to such a distance from the exist- 
 ing towns as to destroy them, and build up rivals on 
 the prairie ; and in case of refusal this threat was 
 ruthlessly carried into execution. It is needless to 
 say that few had the temerity to refuse. 
 
 By this time the power of the railway constructor 
 had become almost autocratic. He demanded that 
 towns and counties should vote bonds, and, under the 
 pressure of the same kind of threats as have been 
 mentioned, the bonds were authorized by the legisla- 
 ture and voted by the people. But it should be stated 
 that other means than threats were employed to pro- 
 duce these results. A paid " lobby " attended every 
 session of the legislature. Judges of all grades, from 
 the supreme to justices of the peace, the executive 
 ofiBcers of the State, the members of the legislature, 
 the county, city, and town officials, the " striker " at 
 caucuses, and the " pot-house " politicians had free 
 passes. 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 
 
12 THE RAILWAY PROBLEM. 
 
 early legislature, who shook his head at the tempting 
 offer of 1100,000 in railway stock, but at the same 
 time said, " Give me instead ten dollars in cash," has 
 become memorable. Thus early was the corrupting 
 influence of money used to sap the foundations of 
 public morality. 
 
 There was another tremendous power at the com- 
 mand of the railways, perhaps more influential be- 
 cause more occult than any that has been mentioned. 
 It reached a class that could not be influenced by 
 open threat or secret bribe. It was in their power 
 to discriminate in respect to rates. Who can say 
 how many business men, knowing the power of these 
 companies in this respect, and realizing their own 
 helplessness in such an issue, preferred to make a 
 virtue of their necessities by admitting, coward-like, 
 in advance that every proposition was just, and met 
 the approval of their judgments ? There is, perhaps, 
 no power so influential to control the minds of men 
 as a secret terror. 
 
 Jt is a pleasure to turn from this side of the hide- 
 ous picture to seek for a brighter. It may be said 
 that the railway managers of those days were men 
 of personal integrity. In their personal affairs they 
 were whole-souled and generous. They were men 
 of fine physique, large brain, and tremendous force 
 and energy. Had they lived two hundred years be- 
 fore, they would have become kings and dukes. At 
 the head of their clans, with the battle-axe or broad- 
 sword, they would have led to victory or death. No 
 sentimental nonsense about the rights of others, the 
 value of human life, or the sorrows of widows and 
 orphans would have blocked their way. They were 
 cast in that imperious mould which brooked no oppo- 
 sition. 
 
ERA OF CONSTRUCTION. 13 
 
 It may be truthfully said that, in the early part of 
 this period, it was a matter of grave doubt whether 
 railways in this section would be profitable, and pru- 
 dent men might well demand ample security before 
 venturing upon such doubtful enterprises. In this 
 view, it would seem that no particular fault should be 
 found with the railway managements, until the pe- 
 riod when the people ceased to accede to their de- 
 mands from a sense of fairness, and it became neces- 
 sary for the former to resort to paid lobbyists and 
 other forms of pressure which have been mentioned. 
 
 In regard to the later exactions, such as immunity 
 from taxation of land, bonuses, bonds, donations of 
 right of way, station, and other grounds, it may be 
 said that of necessity construction work was com- 
 menced without enough capital to complete it. The 
 results of the first years of operation of uncompleted 
 lines were not such in respect to profits as to induce 
 the investment of additional capital. As a matter of 
 fact, they were unprofitable. These conditions pre- 
 sented to the builders the alternative of indefinitely 
 suspending construction, or securing additional advan- 
 tages and immunities which should, in part at least, 
 make up for their losses of operation. 
 
 To have suspended work would have been tanta- 
 mount to bankruptcy for the railway companies, and 
 to little less for the community. Looking at the 
 whole subject from the standpoint of to-day, and con- 
 sidering the splendid results which have followed, it is 
 beyond doubt that the people, although paying more 
 than they expected at the outset, did not give more 
 than they could afEord for the railways. Why, then, 
 was it necessary to resort to the methods which have 
 been described, to secure the consent of the people to 
 
14 THE RAILWAY PROBLEM. 
 
 these additional considerations ? Was it necessary ? 
 Who can say but other and better methods would 
 have been equally successful ? 
 
 At the close of the year 1867 there were four hun- 
 dred and eighty-two miles of completed railway in 
 the State. The four original land-grant companies 
 were well under way, and, to use a homely phrase, 
 they had " gone through " the State, and had secured 
 and appropriated every resource it possessed which 
 could be made available for railway construction. 
 They had, as has been stated, secured from the le- 
 gislature a contract forever exempting their lands 
 from taxation, which was soon to be confirmed by 
 the people by an amendment to the Constitution. 
 They had invented, or at any rate introduced, the 
 pernicious principle of allowing cities, towns, and 
 counties to issue bonus bonds to aid the construction 
 of railways. They had discovered that the power 
 they possessed of varying the location of their lines, 
 their stations, and their workshops was sufficient to 
 extort money, right of way, and lands from individu- 
 als, and to bring " to their senses," as they termed it, 
 any disgruntled board of supervisors or legislative 
 members who might have the temerity to oppose any 
 pet scheme, and there was no hesitation in using this 
 power. They had learned how to pack caucuses and 
 control local elections. They had established a lobby 
 termed the " Third House," under their pay and con- 
 trol, and which, for the time being, appeared to be 
 all-powerful in legislation. 
 
 Both of the great political parties recognized their 
 strength and courted their support. Their own 
 employees were then loyal. They considered the 
 interest of their employers their interest, and they 
 
ERA OF CONSTRUCTION. 16 
 
 followed their foremen wherever they chose to lead. 
 The managing officers were now potentates, — " rail- 
 road magnates," " railroad kings." They traveled in 
 state, surrounded by their personal staff, the heads 
 of the different departments, who were almost as im- 
 portant personages as their chiefs. When they visited 
 a town on their ILoes, the principal business men 
 rushed to greet them. The fat of the land was at 
 their disposal. Merchants sent baskets of champagne 
 to the heads of the traffic departments and sealskin 
 jackets to their wives, while on the other hand special 
 rates were liberally bestowed upon favorites. Special 
 clerks were required to be wholly employed in issuing 
 free passes. Judges and juries seemed to have a per- 
 ceptible bias in their favor, the brightest attorneys 
 were retained, and minor officials were glad to grant 
 them favors. The country press was subsidized with 
 passes for editors, their families and their friends. 
 
 A distinguished Englishman, the author of " The 
 American Commonwealth," describing the palmy 
 days of the dynasties, says : " These railway kings 
 are among the greatest men, perhaps I may say are 
 the greatest men, in America. They have wealth, 
 else they could not hold the position. They have 
 fame, for every one has heard of their achievements ; 
 every newspaper chronicles their movements. They 
 have power, more power — that is, more opportunity 
 of making their personal will prevail — than perhaps 
 any one in political life, except the President and 
 the Speaker, who after all hold theirs only for four 
 years and two years, while the railroad monarch may 
 keep his for life. When the master of one of the 
 greatest Western lines travels towards the Pacific on 
 his palace car, his journey is like a royal progress. 
 
16 THE RAILWAY PROBLEM. 
 
 Governora 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 ? " 
 
 Such was the beginning of the dynasties of abso- 
 lutism in the management of Western railways (un- 
 der the conditions of modern civilization the public 
 highways of the land), which have since afflicted the 
 business of the country, and are now, by both a reflex 
 and direct influence, crushing the business of the rail- 
 way companies as well, and gradually reducing these 
 noble properties to the verge of bankruptcy. Con- 
 ceived in the womb of usurpation, nurtured by the 
 power of might, these dynasties take no note of the 
 progress of the world of thought or of changed condi- 
 tions, but, like their Bourbon prototypes, they neither 
 move forward nor backward, they neither learn nor 
 forget. Almost a generation ago, the best thought 
 of the country was convinced that the railway com- 
 panies were quasi-public corporations, owing certain 
 duties and amenable to the laws. The highest courts 
 of the country have sustained this view, and still, with 
 an obstinacy worthy of Philip the Second, they hid 
 defiance to the laws and public opinion, and, as a 
 consequence, the properties they control are being 
 ground to powder between the upper millstone of 
 the laws and the nether millstone of their fatuity 
 and duplicity. 
 
 These dynasties possess now but a shadow of their 
 former grandeur. When they travel through their 
 own domain, what merchants so poor as to do them 
 homage as in days of yore ? Their freight agents, 
 instead of being petted by the principals, and their 
 princely favors propitiated by presents of wines, are 
 
ERA OF CONSTRUCTION. 17 
 
 now happy if they may be permitted to enter the 
 counting-room for the purpose of humbly soliciting 
 traffic, and are quite willing to come in at the back 
 door to negotiate with the shipping clerks. The 
 sealskin jacket business has been reversed, and these 
 garments are now supplied from the treasuries of the 
 railway companies to the wives of clerks in mercan- 
 tile houses, whose husbands happen to be in the pos- 
 session of the opportunity, surreptitiously or other- 
 wise, of routing freight. 
 
 In politics they have fallen from their former dicta- 
 torial estate to a cipher, if not to a minus quantity. 
 The chiefs long ago forfeited the confidence of their 
 employees, which was the bulwark of their political 
 power. To such an extent has this gone that if they 
 appear to favor any particular men or measures, these 
 are at once regarded with suspicion by the employees; 
 so that now the dynasties, instead of being courted, 
 are shunned by political parties and their candidates. 
 Indeed, to the politician's ken, there seems to be writ- 
 ten over the entrance to the palaces of these former 
 magnates the terrible words inscribed over the en- 
 trance to Dante's Inferno, " Who enters here, leaves 
 hope behind." 
 
 Thus in twenty years have the mighty fallen from 
 a position of power and influence never achieved by 
 any other class in .America to an estate so low, though 
 still clutching the semblance of their former great- 
 ness. The humiliating knowledge is ever with them 
 that the only vestige of former power they still pos- 
 sess, either for good or evil, is the ability to "cut 
 rates," and thereby deplete the treasuries of their 
 companies. 
 
CHAPTER III. 
 
 METHOD OF KAILWAY MANAGEMENT. 
 
 By the close of the year 1867 the great companies 
 west of Chicago had progressed so far in their con- 
 struction that the completion of the lines they had 
 then marked out was assured. Two of these com- 
 panies substantially controlled the lines of transpor- 
 tation in a portion of Illinois, all of Wisconsin and 
 Minnesota, and the northern part of Iowa; three 
 others, the remainder of Iowa, Missouri, and also a 
 portion of Illinois. Each company was ostensibly 
 managed by a board of directors, but, so far as their 
 operation and the various and, intimate relations to 
 the business of the sections they served were con- 
 cerned, they were really controlled by one man, called 
 in most cases a general manager, who had in respect 
 to these matters autocratic authority. It was about 
 this time that there commenced among the people 
 a discussion of the principles which should govern 
 the management and operations of railways and their 
 relations to the people, which a few years later cul- 
 minated in the passage of the first of the so-called 
 " Granger laws." In order to ascertain the essence 
 of these laws, it will be necessary fully to comprehend 
 the issues between the two parties, namely, the com- 
 panies on the one side, and the people on the other. 
 
 In this controversy, it was the contention of the 
 companies that they were private corporations, own- 
 
METHOD OF RAILWAY MANAGEMENT. 19 
 
 ing their railways in the same sense that a private 
 trading corporation might own a stock of merchandise, 
 and " that the right of a company owning a road to 
 fix its rate of charges was an attribute of ownership;" 
 that transportation by a railway was essentially an 
 article of merchandise, owned by the company owning 
 the railway, and therefore the company could sell it 
 at any price it might see fit or could obtain, or it 
 could give it away, or refuse to sell it. 
 
 Many, and perhaps most, of the charters under 
 which the roads were built provided that " the board 
 of directors should have the right to regulate their 
 tolls," and that the company should have the right 
 " to demand and receive such sum or sums of money, 
 for freight of persons or property, as they should 
 from time to time think reasonable." 
 
 Construing these charter provisions as a contract 
 with the State, the companies at first denied that they 
 were common carriers, or subject to the duties and re- 
 strictions imposed upon such carriers by the common 
 law. Acting upon these premises, and, as they sup- 
 posed, in the interests of their companies, the mana- 
 gers claimed the right to charge such rates for trans- 
 porting both persons and property as they deemed for 
 the best interests of their respective companies, regard- 
 less of their reasonableness or equality. They claimed 
 and exercised the right to grant monopolies in busi- 
 ness to favored individuals and firms, — for exam- 
 ple, one man or firm would be granted the exclusive 
 privilege of buying all the wheat or corn, or selling 
 all the fuel, wood and coal ; and by the exercise of 
 their power to discriminate in regard to rates and 
 accommodations, they were enabled to enforce these 
 grants of exclusive privileges with a certainty never 
 before pertaining to such grants. 
 
20 THE RAILWAY PROBLEM. 
 
 They assumed the right to dictate to the commu- 
 nities in what market town they should sell their 
 produce and buy their supplies. Thus, a community 
 located forty miles distant from St. Paul, and four 
 hundred miles distant from Chicago, was compelled 
 to trade in Chicago, so as to give the railway the 
 " long haul ; " and in order to enforce this dictation 
 they did not hesitate to make the rates for forty miles 
 as much as, or more than, for four hundred. 
 
 They believed they had the right so to make their 
 schedule of rates as to determine which of the vil- 
 lages on their line should become centres of trade 
 beyond their local territory. 
 
 They also varied their schedules in such a way 
 that they discriminated in regard to rates between in- 
 dividual merchants, manufacturers, miners, and other 
 business men so as practically to determine which 
 should become prosperous and wealthy, and which 
 should not. This class of discrimination was all the 
 more pernicious because done in secret. 
 
 If the premises laid down by the companies as to 
 their ownership and their charter contracts with the 
 State were correct, it would be difficult to controvert 
 these claims of their managers, provided always they 
 were exercised in good faith for the best interest of 
 the companies. It must be admitted that in most of 
 the cases the managers acted in good faith, although 
 with better faith than judgment ; for, generally 
 speaking, they thought they were serving not only 
 their companies, but the people as well. 
 
 Take, for example, the monopoly to buy wheat. It 
 must be remembered that when these railways were 
 constructed the country was sparsely settled. The 
 farmers, being recent immigrants and poor, were 
 
METHOD OF RAILWAY MANAGEMENT. 21 
 
 without the means to build granaries to store their 
 wheat on the farms. Hence it was necessary either 
 that the companies should have cars and power 
 enough to move the whole crop practicallj'^ as fast as 
 it was threshed, — an impossibility, — or that stor- 
 age elevators should be built at each station, and 
 buyers should always be there to purchase wheat as 
 fast as it was brought in ; so that the wheat, thus 
 bought, might be stored in these elevators, till it 
 could be carried to market in a reasonable way, with 
 such motive power and cars as the companies had at 
 their command. 
 
 To build these elevators required a large amount 
 of capital, and the companies were then as poor as 
 the people. Having no money to invest, they were 
 compelled to seek individuals with capital to build 
 the elevators. 
 
 So far, this action seemed to be clearly in the in- 
 terest of both parties. But before individuals would 
 put their money into such elevators, naturally enough 
 they required some guarantee that they should be 
 able to make a profit out of their investments. There 
 were two principal points of possible loss against 
 which these investors demanded indemnity : — 
 
 First. Probably in a very short time the farmers 
 would be able to build granaries on the farms, and 
 thus require no storage at the stations; hence a 
 buyer at any given station, with only a few hundred 
 dollars' investment in a small warehouse, would be as 
 well equipped for the business as the owner of an 
 elevator which cost several thousand dollars. 
 
 Second. The market price is continually fluctuat- 
 ing a few cents per bushel, so that a buyer storing 
 wheat until the time came that the railway could 
 
22 THE RAILWAY PROBLEM. 
 
 move it to market might be a loser, owing to the 
 decrease of the market price during the lapse of time 
 between purchase and sale. 
 
 To secure the erection of these elevators, which 
 at the time seemed so important for the interests of 
 both the companies and the people, but which in 
 a very short time proved otherwise, the companies 
 agreed to assume both of these risks : sometimes by 
 agreeing to collect for the owner of the elevator a 
 certain toll upon every bushel of wheat shipped at 
 that station, even though it did not go through the 
 elevator at all ; and sometimes by agreeing to pay a 
 rebate on all his shipments, which would be sufficient 
 to protect him against all fluctuations in the market, 
 and also would prevent any other buyer doing busi- 
 ness at his station except at a loss. In order to pay 
 such rebates and still get a fair price for hauling, it 
 is evident that the companies had to make the open 
 rates, which were free to all, unreasonably high. 
 
 The managers probably made two mistakes in rela- 
 tion to these contracts, — they overestimated the im- 
 portance of expensive elevators, and they paid too 
 big a price for them, had they proved as important 
 as they supposed. And yet, had these contracts, be- 
 fore being executed, been submitted to the judgment 
 of the farmers interested, it cannot be doubted that 
 they would have fully approved of them. These con- 
 tracts, having been executed, were obligatory upon 
 the companies ; but, notwithstanding that the first 
 contracts have expired by their own limitations, it 
 must be admitted that substantially the same ar- 
 rangements have been continued, in spite of all laws 
 which have been passed forbidding them, for no other 
 purpose than to furnish a means of "cutting" the 
 
METHOD OF RAILWAY MANAGEMENT. 23 
 
 published tariff rates to secure business as against 
 rival lines. 
 
 The monopoly for the purchase of farm products 
 necessarily affected the farmers most directly, and at 
 times has had a tendency to lessen the prices of the 
 products of the farm, and has therefore excited the 
 farmer's hostility against railways. The monopoly 
 in the sale of fuel has been felt most by the citizens 
 of the larger towns and cities, as at times it has 
 had the effect to increase the cost of this article of 
 universal consumption. The discrimination as be- 
 tween localities has borne heavily upon all classes 
 in the towns and villages discriminated against ; and 
 so, when these matters became a subject of general 
 discussion, all classes, from their personal interests, 
 were found arrayed against the companies. And yet, 
 if time and space permitted, it could be shown that, 
 at the time these different principles were adopted, 
 they appeared equally beneficial to the people and 
 the companies, but in their working out they have 
 proved disastrous to both. The grantees of these 
 monopolies became rich, and gradually so powerful 
 that instead of acting, as at first, as the quasi-em- 
 ployees of the companies, receiving rebates as a favor, 
 they are now the masters of the railways, and by 
 playing one against the other are enabled practically 
 to dictate the rates they pay. 
 
 The most conspicuous illustration is the present 
 position of the four great Chicago firms engaged 
 in slaughtering and marketing beef. Their present 
 business was built up by rebates paid by the trunk 
 lines, and each began as a sort of prot^g^ of one of 
 the railways. Now, with their immense business, by 
 combining and throwing the bulk of it to one line. 
 
24 THE RAILWAY PROBLEM. 
 
 they have become dictators of rates to all the great 
 railway corporations. These firms care but little 
 what rates they pay, provided they are less than are 
 granted to other shippers, so that they may continue 
 to maintain their present practical monopoly. 
 
 The uprising of the people of the Western States, 
 vrhich is now being considered, V7as not against the 
 aggregate amount of the rates which were being col- 
 lected by the railways, but against the discrimina- 
 tions they were practicing in collecting their revenues. 
 This fact should be thoroughly mastered by every 
 mind which desires to comprehend the meaning of the 
 so-called Granger legislation. 
 
 That it is a fact will be sufficiently proved by ref- 
 erence to the laws which have been passed establish- 
 ing rates. The average legal rate has not, with pos- 
 sibly one exception, been as low as the average rate 
 made by the companies themselves at the time such 
 law was enacted. This must have been well under- 
 stood bj' the legislature, and therefore was not acci- 
 dental, but may be accepted as evidence of a desire 
 to do substantial justice to the companies. 
 
 The people at first had no well-defined ideas as to 
 their legal rights, and indeed their first attempt at 
 counteracting the methods of the companies was not 
 by direct legislation, but by building, or by encour- 
 aging others to build, competing lines. They had 
 noticed that the very low rates were between com- 
 petitive points like St. Paul and Chicago ; and the 
 extremely high rates were between points like Pump- 
 kinville and Chicago, when there was no competitive 
 line reaching from Pumpkinville to Chicago. They 
 had also noticed that as soon as another and compet- 
 itive line had been built to Pumpkinville the rates 
 
ME THOD OF RA IL WA Y MAN A GEMENT. 25 
 
 there immediately dropped one half, or down to the 
 level of the St. Paul rates. They had noticed that the 
 manager of each of the different companies seemed 
 most delighted when, no matter at what cost, his com- 
 pany could secure some traffic which, if left to its nat- 
 ural course, would have gone to the rival line. 
 
 Taking advantage of these conditions, every ambi- 
 tious town located on one line began to offer induce- 
 ments, by the way of " local aid bonds " and other- 
 wise, to the rival company to build a branch line to 
 that town, and thus, at great expense to the town 
 and to both of the companies, secure the benefits per- 
 taining to a " competitive point." 
 
 The building of such a branch line did not, as a 
 rule, materially increase the traffic at the point of 
 competition. The new line "divided the business," 
 — that is, took about half the traffic from the origi- 
 nal line at such point, while the rates per ton were 
 reduced by both companies one half or more. This 
 was one of the curious phenomena of the times. 
 
 The manager of the original line at Pumpkinville, 
 so long as his was the only road there and com- 
 manded the entire traffic, assured its citizens that by 
 no possible means could his company afford to reduce 
 the rates at that town to the level of the St. Paul 
 rates ; but as soon as the branch line was completed 
 he seemed only too happy to get half the traffic at 
 half his former rates, besides greatly improving his 
 service, and thereby largely increasing the cost. But 
 this method of relief was so expensive to the people 
 that only a few of the more important towns were 
 able to succeed, and the general situation continued 
 as bad or even worse than before. The discrimina- 
 tions of which the people justly complained, instead 
 
26 THE RAILWAY PROBLEM. 
 
 of being ameliorated by this process, seemed to be 
 increased and made more noticeable by multiplica- 
 tion of competitive points. 
 
 Gradually the public mind began to turn for relief 
 towards legislation, and now, although about twenty 
 years have elapsed since the first Granger law was 
 enacted, it seems to be regarded as the most available 
 and the most effective remedy. 
 
 Public opinion did not at once concentrate upon 
 this subject. The property rights of the companies 
 and " the right of a company owning a road to fix 
 its rates of charges being an attribute of ownership," 
 were a stumbling-block to many minds. Had the 
 managers at that time shown even a slight disposi- 
 tion to conciliate, and to correct some of the more 
 glaring discriminations, it is probable that this legis- 
 lation would have been delayed. But they mani- 
 fested no such disposition. The discontent of the 
 people increased, and finally it broke forth with all 
 the fury of a cyclone. Nothing could stand before it. 
 Those politicians who, on account of free passes and 
 other considerations, had always stood by the com- 
 panies blanched before the storm, and so great was 
 the excitement that the governor of a State, as a bid 
 for votes, in a public speech from the stump, felt com- 
 pelled to declare that his party, if successful, would 
 " shake the railways over hell." 
 
 When the chief official of a State felt justified in 
 using such extreme language, it is not easy to imagine 
 the intense feeling of the populace. 
 
CHAPTER IV. 
 
 EFFECTS OF DISCEIMINATION. 
 
 Lest those who are not fully informed should 
 come to the conclusion that too much importance has 
 been given to the power of railway magnates, and 
 too much stress has been put upou the mischievous 
 effects of discrimination in the matter of railway rates 
 upon the business of a country, upon the prosperity 
 of its citizens, and upon the values of its property, 
 and in order more fully to present the issues which 
 are being considered, it is necessary to elaborate, 
 somewhat in detail, the facts bearing thereon, and to 
 point out, at least in part, the method of operation. 
 
 Discriminations in rates may be defined as de- 
 manding and collecting from the residents of one lo- 
 cality materially higher rates than at the same time 
 are charged the residents of another locality for sub- 
 stantially the same service, or from one individual or 
 firm more than from another individual or firm in the 
 same locality. 
 
 For example, if a railway company should demand 
 for hauling any given quantity of freight one hun- 
 dred miles the same price as for hauling a like quan- 
 tity and kind one hundred and five miles, the differ- 
 ence is so small that it would not be material ; but if 
 it should charge as much, or more, for hauling such 
 quantity one hundred miles as, at the same time and 
 under similar conditions, it charged for hauling the 
 
28 THE RAILWAY PROBLEM. 
 
 same quantity twice the distance over the same line, 
 the diEference would become material, — especially if 
 the charge for the shorter haul were twice as much 
 as for the longer haul, as has frequently been the 
 case. This would be termed discrimination as be- 
 tween localities. And if it should charge more for 
 hauling say ten carloads of iron from Chicago to St. 
 Paul for one merchant than it charged at the same 
 time for hauling the same quantity between the same 
 points for another merchant, it would be termed dis- 
 crimination between individuals. 
 
 " Competition in trade " is a phrase which has a 
 peculiar charm in the ears of a commercial people. 
 It implies freedom of thought and action, and a fair 
 chance. For generations the children at school have 
 been taught that " competition is the life of trade," 
 and so it is as between individuals on approximately 
 even footing. It sharpens the wits, awakens inven- 
 tive genius, and stimulates good manners. But that 
 conjpetition which is " the life of trade " can exist 
 only between parties occupying substantially the 
 same plane. It cannot exist between " big fish " and 
 " little fish " in the same pool. The " little fish " 
 must keep close to shore and be contented with what 
 the " big fish " do not want, or be swallowed. 
 
 The practice by railway companies of making un- 
 reasonably low rates from important junction points, 
 while maintaining high rates elsewhere, has been im- 
 properly named " competition," and the name has 
 given it a certain amount of popularity. But in fact 
 it has not been " competition," but " discrimination." 
 Discrimination, instead of being " the life of trade," 
 is the death of that fair competition as between indi- 
 viduals and localities which so long and so justly has 
 been called " the life of trade." 
 
EFFECTS OF DISCRIMINATION. 29 
 
 The city in whose favor discrimination is practiced 
 becomes the " big fish," and at once begins the pro- 
 cess of " swallowing " the trade and population of its 
 unfortunate neighboring cities ; and the individual 
 tradesman who receives rebates quickly devours those 
 who do not. It is the same as though the govern- 
 ment should make rebates from its tariffs to some 
 importing houses which it refused to make to others. 
 It would be absurd to suppose that between such 
 favored houses and houses not so favored there could 
 be any competition. If houses which paid the full 
 tariff continued to exist, it would be by permission 
 of the favorites ; their existence would be by grace, 
 not by good works. 
 
 To judge correctly of the effect of discrimination 
 requires the possession of certain commercial infor- 
 mation. For example, it should be known that when 
 corn is worth twenty-five cents per bushel in the 
 Chicago market, at the railway station west of the 
 Missouri River it would be worth from twelve to 
 fifteen cents ; the difference between its value in the 
 far West and in Chicago being made up of cost of 
 transportation, the expenses of buying and selling, 
 and a profit for the middleman. A clean profit over 
 all expenses of one half of a cent per bushel is a sat- 
 isfactory profit to the middleman, and a guaranteed 
 rate of transportation of even so small a sum as one 
 quarter of a cent per bushel less than any other mid- 
 dleman can get will give the man possessing it a mo- 
 nopoly of the business of handling the corn in the dis- 
 trict covered by the guarantee. That is to say, if it 
 were possible to give one middleman the permanent 
 advantage, in respect to rates, over all others in this 
 business, to the extent of one quarter of a cent per 
 
30 THE RAILWAY PROBLEM. 
 
 bushel, it would be a weapon of warfare sufficiently 
 powerful, under present commercial conditions, to 
 drive every otber middleman out of the field, and to 
 secure to the fortunate individual the whole corn 
 traffic. Why ? Because a clean profit of one quar- 
 ter of a cent per bushel would be sufficient to pay an 
 enormous interest on the necessary capital of the 
 middleman ; and it is evident that if he contented 
 himself with that profit, no other man could get any 
 profit at all. Such are the facilities of trade by means 
 of bills of lading, drafts, telegraphs, banks, etc., that 
 to do an enormous corn trade the middleman re- 
 quires only a comparatively small capital to use as 
 a margin. A capital of $50,000 is ample thus to 
 handle 15,000,000 bushels, and with activity double 
 that amount, per annum. One quarter of a cent per 
 bushel profit on 15,000,000 bushels would amount to 
 $37,500, which is equal to seventy-five per cent per 
 annum of the capital employed. As a matter of fact, 
 such an arrangement to the extent of one thirty-sec- 
 ond of a cent per bushel in the hands of a Rockefel- 
 ler would accumulate in a short time the wealth of 
 a Vanderbilt, because it would create a monopoly. 
 And if all competition were out of the field, he 
 might not be contented with one thirty-second; he 
 would then have the power to exact more. 
 
 So in the coal trade : fifteen cents per ton is a satis- 
 factory miner's profit, and a permanently guaranteed 
 discrimination in his favor in rates of five cents per " 
 ton would be sufficient, in the hands of a competent 
 man, to create a monopoly, and drive all other min- 
 ers out of the business. 
 
 A like profit, from the same source, of five cents 
 per barrel on flour would pay the shareholders in 
 
EFFECTS OF DISCRIMINATION. 31 
 
 one of the great milling corporations at Minneapolis 
 satisfactory dividends, and give it a monopoly if it 
 cared to increase its plant sufiBciently. 
 
 With these facts fresh in mind, who is willing to 
 say that the power to discriminate in freight rates 
 ought to be lodged in the control of one man or a 
 few men? Under such conditions what business is 
 safe ? The average business man feels strong enough 
 and acute enough to cope with his competitors on 
 equal terms, but here is a power he cannot compete 
 with and he cannot avoid. 
 
 This power, like a government, has authority to 
 make tariffs and enforce their collection. It claims 
 a right which no civilized government claims, and no 
 sovereign has dared to exercise for centuries, of re- 
 bating a portion of its tariff, and thus discriminating 
 between its subjects in the collection of its revenues. 
 It is safe to say that if the Congress of the United 
 States should enact a law which established on any 
 commodity one impost duty for the city of New 
 York and a different duty for other cities, or one duty 
 for one firm and another duty for another firm, no 
 matter how slight the difference, the people would 
 resort to arms, if need be, rather than submit. 
 
 Railway transportation, under present conditions, 
 is to the industrial world what the atmosphere is to 
 the physical world : it pervades and is essential to 
 all industries. As in the physical world no man or 
 beast, no plant or shrub, can refuse to breathe the 
 air without death ensuing, so in the industrial world 
 no industry and no human being can refuse railway 
 transportation except under similar penalties. It 
 pervades every article of commerce. When one buys 
 food, clothing, or fuel, he buys railway transporta- 
 
32 THE RAILWAY PROBLEM. 
 
 tion. When he builds houses, or stores, or manufac- 
 turing establishments, churches or school-houses, he 
 buys railway transportation. When he buys horses 
 and carriages, jewels or statuary, paintings or books, 
 theatre tickets or lecture tickets, or indulges in the 
 luxury of doctors or lawyers, he pays for railway 
 transportation. 
 
 Who would consent that a few men should have 
 the power to dictate upon what terms the air should 
 be breathed ? It is idle to talk about railway trans- 
 portation being a mere article of commerce, owned 
 by the company, " who, as such owner, may sell it or 
 not, as it may see fit, or, if it elects to sell, may de- 
 mand such price as it chooses or can obtain." It is 
 nonsense to call that merchandise which no one can 
 refuse to purchase. 
 
 Looking at the subject from the point of view of 
 the owner of railway property, this absolute power 
 in the hands of managers, who after all are but hu- 
 man, with limited knowledge and capacity, seems 
 quite as dangerous to that interest as to the interests 
 of the people. 
 
 It is evident that, in order to keep railways run- 
 ning, sufficient revenue must be collected to pay 
 operating expenses, and fairness requires an addi- 
 tional amount as compensation for the use of the 
 capital invested. So large is the tonnage that a 
 slight change in the average rate per ton per mile 
 makes a difference between a profit and a loss, and 
 the whole revenue is made up of an almost infinite 
 number of comparatively trifling collections. An 
 average difference of one tenth of a cent per ton 
 per mile on the tonnage of the Chicago & Northwest- 
 ern Railway in 1888 would have made a difference 
 
EFFECTS OF DISCRIMINATION. 33 
 
 of $1,989,044.10 in its aggregate revenue. This sum 
 would have been more than sufficient to pay six per 
 cent dividend on its common stock. A mill a ton 
 per mile is about equal to two cents per hundred- 
 weight between St. Paul and Chicago. These fig- 
 ures show how delicately a tariff must be adjusted to 
 produce a proper revenue, and how slight a variation 
 may result in wiping out the dividends of a year. 
 And yet upon each road one man with autocratic 
 power, with many subordinates acting separately and 
 without consultation, is making rates varying in 
 amounts from day to day, and as between different 
 men and localities, without rule or principle as a 
 basis, simply guessing in each case, with the expec- 
 tation that the average guesses for a year will come 
 within the fraction of a mill per ton per mile of the 
 proper amount. This appears to be the present basis 
 of the value of railway property. If the people need 
 a fixed rule or law for establishing the basis of rates, 
 the companies need it even more. But such a law, to 
 be just or beneficially effective, should consider the 
 rights of both parties. 
 
 To return to the story of discriminations in the 
 period of 1867-71. The rates then were much higher 
 than they are now. Then the average rate per ton 
 per mile was slightly over three cents ; now it is less 
 than one cent. The higher rates permitted much 
 greater range of discrimination than would be possi- 
 ble now. Then it was by no means uncommon that 
 the "local rate" on wheat, the great staple of Minne- 
 sota, to the Chicago market was ten cents per bushel 
 higher than the through or " competitive " rate ; al- 
 though the local station might be nearer Chicago on 
 the same line, so that the " through wheat " passed 
 
34 THE RAILWAY PROBLEM. 
 
 the local point on its way to market. Other rates 
 were adjusted on a similar basis. What was the re- 
 sult? 
 
 (1.) As regards the value of farms. The value of 
 a farm, like that of other prdperty, depends upon the 
 income it will yield. But if each of two farms pro- 
 duces twenty bushels of wheat per acre, and, owing to 
 discrimination in freight rates, wheat at the competi- 
 tive station is worth ten cents aJaushel more than at 
 the local station, then the farm at the competitive 
 station would produce f 2 per acre per annum more 
 than at the local station. This being capitalized on 
 the basis of ten per cent would make a difEerence in 
 the value of land of $20 per acre, or, if on the basis 
 of six per cent, I33.S3 per acre. The difEerence in 
 the farmer's income is apparent. 
 
 (2.) As regards villages. When a village has a 
 few stores, a blacksmith, shoemaker, and carpenter, 
 the wants of the adjacent territory are supplied. To 
 increase beyond this point requires the introduction 
 of manufactories and the larger class of tradesmen or 
 jobbers. Every village in a new country has expec- 
 tations. On these are based the value of its town 
 lots, and the wealth, or expected wealth, of the villa- 
 gers. It is true that, with the fairest and most equi- 
 table railway tariff a majority of these expectations 
 would come to naught ; but with a discrimination of 
 . ten to fifteen cents per hundredweight against them, 
 there is no hope. At the time under consideration, 
 the villagers had begun to realize the hopelessness of 
 their situation. All their brightest business men 
 were moving to the cities, and the few manufactur- 
 ing establishments that had started in a small way 
 had either moved, or foresaw that, unless a speedy 
 change came, they must move. 
 
EFFECTS OF DISCRIMINATION. 35 
 
 (3.) As regards cities and " competitive points." 
 There can be no doubt that discrimination has been 
 the chief factor in causing the rapid increase of busi- 
 ness, population, and wealth in Western cities during 
 the last two decades. At an early day this agency 
 was beginning its work, and the future was clearly 
 foreseen. But, notwithstanding their personal inter- 
 ests were being conserved, the discriminations were 
 so manifestly unjust that the people of the cities con- 
 demned them. Besides, the urban population had a 
 grievance of their own in reference to the fuel monop- 
 oly, which had been created by the discrimination in 
 rates upon this necessary commodity. The people 
 believed, and apparently not without reason, that they 
 were unduly taxed by reason of short weights and 
 exorbitant prices. 
 
 So, in one way and another, every class of people, 
 the farmer, the mechanic, the villager, and the city 
 resident, including the common laborer who consumed 
 fuel, was in arms against discrimination and its con- 
 sequent monopolies. 
 
CHAPTER V. 
 
 COMPETITION. _ 
 
 There were other circumstances in connection with 
 discrimination in rates which had direct bearing 
 in forming the so-called Granger legislation, which 
 should receive consideration as tending to elucidate 
 the meaning of the laws. It is the writer's opinion 
 that through all these laws runs a clearly defined 
 thread of evidence that the intention of the legisla- 
 tures was not to rob the owners of railways of a fair 
 return upon their investment, as is so often charged 
 by writers who live in the vicinity of Wall Street ; 
 but, on the contrary, it was to protect their rights, 
 while at the same time protecting the people against 
 unjust discrimination. It is probably true that most 
 of the rates fixed by these statutes were higher than 
 the rates then being collected by the companies. If, 
 however, it shall be found that some of these statutes 
 reduce, the aggregate revenues of the companies, it 
 becomes important, in order to sustain the writer's 
 theory as to the intention of the law-makers, to in- 
 quire if there were any facts tending to show that the 
 rates thus established were fair and reasonable, and 
 if such facts were sufficiently important to justify the 
 conclusion that these rates were proper, thus making 
 the law consistent with the theory of intended fair- 
 ness on the part of the legislature. Legislators, 
 selected from the body of the people of a State, could 
 
COMPETITION. 37 
 
 hardly be expected to have any definite knowledge of 
 the cost of transportation by railways; and indeed the 
 cost is such a varying quantity, depending upon so 
 many ever-changing circumstances, that managers 
 ■were unable to give much definite information upon 
 the subject. 
 
 Lacking certain information, the legislators should 
 be justified in assuming that the companies were look- 
 ing after their own interests to such an extent that 
 the rates which they had themselves voluntarily made 
 were at least remunerative. Rates thus made would 
 certainly seem to be a fair criterion, but unfortu- 
 nately for the companies they were not. The demon 
 of competition had been let loose at the most impor- 
 tant points, and a rate war raged between the com- 
 panies year after year, which carried rates between 
 these important competitive points to such a low 
 range that, had the companies been unable to recoup 
 the loss at local stations, most serious financial diffi- 
 culties would have followed. 
 
 But why should legislators be expected to know 
 this important fact ? The autocrats of the companies 
 did not claim to be able to state definitely the cost ; 
 and when this subject was broached, they and their 
 lieutenants usually assumed an air of mystery with a 
 shrugging of the shoulders indicative of something so 
 occult about the making of rates that none who had 
 not been admitted to the circle of autocracy could 
 possibly understand it. Without deigning to go into 
 the whys or wherefores, these priests of the mysteries 
 of the spirit of discrimination told the legislators, in 
 a general way, that the competitive rates were too 
 low, and yet they were profitable, but that the much 
 higher local rates were unprofitable, a paradox which 
 
38 THE RAILWAY PROBLEM. 
 
 the law-makers were unable to understand and unwill- 
 ing to accept. In the absence of definite information 
 they could only reason from analogy. If the flour 
 merchants should sell to the residents of the princi- 
 pal streets of a city at $2.50 the flour for which they 
 charged the residents of all the other streets $5, and 
 should continue this for a succession of years, and 
 employ agents to canvass and solicit orders at the 
 low rate, it would seem to be a fair assumption that 
 they could afford to sell all their flour at that price, 
 and that the f5 price was extortionate. At this 
 time the companies claimed that' their transportation 
 was essentially an article of commerce and subject 
 to the laws of commerce; why, then, were not legis- 
 lators justified in judging of its cost by the anal- 
 ogies of commerce ? Under the circumstances, it 
 would seem that they would have been justified in 
 coming to the conclusion that the usual scale of com- 
 petitive rates (not the lowest of such rates) were 
 sufficiently remunerative for the railways to apply 
 to their whole traffic. But this view was never in- 
 sisted upon until the Iowa Act of 1887, the earlier 
 legislatures seeming to have adopted the conclusion 
 that the competitive rates were rather too low, the 
 non-competitive rates too high, and that, to do justice 
 to the people, the legislature should reduce the rates 
 which were too high, and leave the companies free to 
 advance the rates which were too low ; thus securing 
 a proper adjustment, and at the same time not ma- 
 terially affecting the aggregate revenues of the com- 
 panies. 
 
 Had the companies accepted these methods it would 
 seem that it should have resulted in a very happy 
 adjustment. But the companies did nothing of the 
 
COMPETITION. 39 
 
 kind. They were so wedded to their idol of discrim- 
 ination, and in fact had so befogged their own minds 
 with their pretended mysteries, that, like the children 
 of Israel, they refused to recognize the true God, but 
 continued to worship the calf of their own creation. 
 So, immediately after the adjournment of the legis- 
 latures, instead of raising the rates which were ad- 
 mittedly too low, or even steadily holding the old 
 rates, in many cases the companies reduced them in 
 about the same proportion as the higher rates had 
 been lowered by the law, and the rate to favored ship- 
 pers at local stations was likewise lowered ; so that 
 the old monopolies and the old discriminations were 
 perpetuated, the laws were made futile, and the rev- 
 enues of the companies were depleted. In the nat- 
 ural course of events, such a policy should have 
 brought on a crisis in the affairs of the companies, 
 and so it would but for the extraordinary increase 
 and growth of the country and the discovery of pro- 
 cesses of economy in operation. It was about this 
 time that the Western States received their greatest 
 increase of business, as will be seen by referring to 
 the census tables of population, which are a fair index 
 of the growth of the business. In 1860, the popula- 
 tion of Minnesota was, in round numbers, 172,000 ; 
 in 1870, 440,000; in 1880, 780,000: of Wisconsin, in 
 1860, 775,881 ; in 1870, 1,054,000 ; in 1880, 1,315,- 
 000 : of Iowa, in 1860, 674,000 ; in 1870, 1,194,000 ; 
 in 1880, 1,624,000. It was about this time, too, that 
 the Bessemer process of making steel rails, and the 
 practicability of using larger cars and locomotives 
 with the result of economy in operation, were dis- 
 covered. 
 
 The action of the companies in maintaining the 
 
40 THE RAILWAY PROBLEM. 
 
 relative difference between competitive and non-com- 
 petitive rates was a practical defiance of the author- 
 ity of the laws, and tended to increase the bitter feel- 
 ing among the people. Why the managers should 
 have assumed such an attitude it is difficult to under- 
 stand. The usual reason assigned by each manager 
 is that " the other did it first," and therefore he was 
 compelled to ; but why " the other did it " is not 
 easily explained. It is hard to resist the conclusion 
 that it was an arbitrary act of autocratic power, born 
 of the imperious desire to demonstrate the ability of 
 the autocrat of one company to secure more than his 
 fair share of trade at the expense of a rival autocrat. 
 
 Just after the passage of the first Granger law 
 (about 1872) an incident occurred which seems to 
 support this view of the case, and at the same time 
 serves to illustrate the short-sighted policy and the 
 mischievous effects of the exercise of power regard- 
 less of the dictates of justice or reason. It also ma- 
 terially affected subsequent legislation. 
 
 It was about 1872 that the Lake Superior and Mis- 
 sissippi Railway (now the St. Paul and Duluth) was 
 completed from St. Paul and Minneapolis to Duluth, 
 at the west end of Lake Superior, a distance of one 
 hundred and fifty-six miles. Duluth being as near the 
 seaboard by the way of the Great Lakes as Chicago 
 is, the projectors of this line thought that, during the 
 season of navigation on the lakes, it would be able to 
 command the carrying trade of the district of country 
 which was nearer (in miles) to Duluth than Chicago. 
 This district embraced a portion of Wisconsin, all of 
 Minnesota, a portion of Iowa and the Territories to 
 the westward, and the cultivated and inhabited area 
 lying to the south and west of St. Paul and Minne- 
 
COMPETITION. 41 
 
 apolis. The latter area was served in the matter of 
 transportation by the Mississippi River, which was a 
 free highway, by certain lines belonging to Chicago 
 companies, and by two independent lines : one run- 
 ning from St. Paul southwest to Sioux City, Iowa, 
 about two hundred and seventy-five miles; the other 
 extending westward with two branches, in all about 
 three hundred or four hundred miles. The east- 
 bound traffic of these independent lines, when it 
 reached St. Paul, was free to seek its way to market 
 in the East by rail to Duluth, one hundred and fifty- 
 six miles, or by rail to Chicago, four hundred miles. 
 This was the situation of affairs when the man of 
 iron nerve who then controlled the Chicago line, 
 which had heretofore enjoyed the whole carrying 
 trade of the district, issued his royal decree that not 
 a pound of this traffic should pass over the short line 
 to Duluth. His first move was so to adjust the rates 
 on his own line that it would cost as much or more 
 to send freight between all stations on his line to or 
 from St. Paul or Minneapolis as to or from said sta- 
 tions and Chicago, although the distance might be 
 only twenty miles from St. Paul or Minneapolis, and 
 over four hundred miles from Chicago. This tariff 
 was contrary to law and in defiance of it, but it ef- 
 fectually locked out the territory adjacent to his line 
 from all benefits expected from the building of the 
 short line, and also from trading with the two Minne- 
 sota cities, their natural market towns. On his own 
 lines he was absolute, but when he came to deal with 
 the Mississippi River and the independent lines the 
 task was more difficult. The autocrats of these lines 
 had no sympathy except for a good consideration in 
 lawful money. Nothing daunted him. He would 
 
42 THE RAILWAY PROBLEM. 
 
 buy their traffic. So he made between all stations 
 on these independent lines and Chicago such rates 
 as were necessary to get the business, out of which 
 he would pay the local rates to the independent com- 
 panies, and accept for his haul of four hundred miles 
 what was left. This residue was sometimes a trifle, 
 sometimes nothing, and at the latter end of the strife 
 a minus quantity. Wheat being the great staple of 
 the country, he placed buyers for his company at 
 every station, with instructions to take it all, regard- 
 less of the price. On the wheat purchased, it was 
 currently understood at the time, his company sus- 
 tained an absolute loss, besides hauling it over four 
 hundred miles for nothing. But the short line had 
 an autocrat, too, who proved a " foeman worthy of 
 his steel." He met the rates of his enemy at every 
 point and did better. His wheat buyers were at 
 eyery station, bidding against the buyers of the rival 
 line. The war raged furiously for two seasons. At 
 the end of the second season the financial resources 
 of the short line were exhausted, and the company 
 submitted to the inevitable, and went into liquida- 
 tion. 
 
 During the two years' war the short line hauled 
 over its road several million bushels of wheat, on 
 which it did not collect a penny of revenue, but actu- 
 ally paid out a larger sum of money, besides the loss 
 of revenue, stated at the time to be about $1,000,- 
 000. Of course its losses on other business were cor- 
 respondingly great, and the losses of the older com- 
 pany, which secured the bulk of the business, were 
 in an even greater ratio. It cannot be doubted that 
 the cost to both companies of this two years' war 
 was sufficient to buy the whole property of the Lake 
 
COMPETITION. 43 
 
 Superior and Mississippi Railway Company. The in- 
 direct loss to the railways of this section continues to 
 this time in the absurdly low rate of three and one 
 half mills per ton per mile on wheat and flour be- 
 tween the Minnesota cities and Chicago, — a rate so 
 low that every barrel is carried at a loss. What was 
 there gained by the Chicago line to offset this tre- 
 mendous cost ? When the smoke of the battle cleared 
 away, the Lake Superior and Mississippi Company 
 was hors de combat ; but there stood Duluth, there 
 were the Great Lakes, there were the rails, the cars, 
 and tbe locomotives of that short line, and there they 
 are to-day. When the war commenced, the short line 
 was burdened with certain interest charges which 
 it was its duty to earn if it could, which tended to 
 make it conservative and to cause it to strive to get 
 a fair price for its services. When the war ended, it 
 was in the hands of a receiver who felt no special 
 pressure on that account, and when it emerged from 
 the receivership it was free from mandatory interest 
 charges. By this process the weaker became the 
 stronger company, and now it is able to dictate rates 
 to its old enemy on several thousand miles of rail- 
 way. The history of this war and its results is a 
 commentary upon the boasted value of the one-man 
 power in the management of railways. It does not 
 seem possible, had this question been submitted to a 
 board of directors who were anything more than a 
 nominal board, but some of them would have been 
 able to foresee the result, and thereby to avert the 
 mischief. 
 
 But what bearing had this war on the general sit- 
 uation and subsequent legislation ? In the first place, 
 it unsettled values for two years, creating an abnor- 
 
44 THE RAILWAY PROBLEM. 
 
 mally high price for the products of the district, and 
 a correspondingly low price for the goods purchased 
 for consumption. When the end came and values 
 returned to their normal conditions, the people who 
 could not see below the surface and comprehend the 
 underlying condition felt aggrieved, believing they 
 were then being robbed by the companies enforcing 
 extortionate rates. In the second place, it continued 
 for two seasons over one section of the country rates 
 materially lower than over other sections enjoying 
 equal if not superior natural locations, which created 
 discontent in the latter sections. In the third place, 
 it impressed upon the public mind, to an extent never 
 before realized, the tremendous power possessed by 
 the autocrats of the railway companies whenever they 
 might choose to use it, and the merciless manner in 
 which they were capable of enforcing their tyrannical 
 decrees. 
 
 In this connection it should be mentioned, as part 
 of the history of the war, that the people of the cities 
 of St. Paul and Minneapolis, and of such towns as 
 Faribault, Owatonna, Northfield, etc., all within fifty 
 miles of each other, petitioned the railway magnate 
 over and over again to be allowed to trade with each 
 other, but it was of no avail. The war closed with 
 the season of navigation of 1873. 
 
 When the legislatures of the different States con- 
 vened, at the beginning of the year 1874, the full 
 effects of this war upon the minds of the people be- 
 gan to be realized by the companies. It was in this 
 year that a most severe measure, commonly known 
 as the " Potter Law," was passed by the legislature 
 of Wisconsin, and similar, though less stringent, laws 
 were passed in Minnesota, Iowa, and Illinois. 
 
CHAPTER VI. 
 
 HOW TARIFFS GKEW. 
 
 Having devoted so much space to pointing out 
 the injustice and evil effects of discrimination, and 
 having so often laid blame upon the managers, fair; 
 ness demands that the other side of the case should 
 be stated. 
 
 The chaotic condition of present railway tariffs is 
 the result of years of growth. They have been 
 evolved by a multitude of circumstances and condi- 
 tions. The first schedule of rates upon a new road 
 in a non-competitive territory is based upon sound 
 principles; There are two principal divisions of the 
 expenses of railway transportation. (1.) The cost of 
 terminal or station work. (2.) The cost of handling. 
 
 As every shipment requires station work, at both 
 the forwarding and the receiving station, and as these 
 station expenses are the same whether the haul is 
 ten miles or five hundred miles, it follows that the 
 rate per mile must be materially greater for a short 
 haul than for a long haul. For example : suppose it is 
 assumed that three cents per hundredweight, or sixty 
 cents per ton, is the proper charge to cover the sta- 
 tion expenses at each end of any given shipment, and 
 one half cent per ton per mile is the right amount to 
 charge for hauling, the mathematical calculation to 
 ascertain the proper rate per ton per mile for ten and 
 for five hundred miles would be as follows : To the 
 
46 THE RAILWAY PROBLEM. 
 
 two station expenses, sixty cents each, and for the 
 ten miles haul one half cent per mile ; and the total, 
 $1.25, the proper charge for ten miles, would be equal 
 to an average of twelve and one half cents per mile. 
 The same calculation would give f3.70 as the rate 
 per ton for five hrundred miles, or an average per 
 mile of only seventy-four one hundredths of a cent. 
 Now, if a manager or his freight agent were called 
 upon to make a tariff for a new road in a non-com- 
 petitive district, whether he copied an old tariff 
 which had been in effect at some former time on a 
 road similarly situated, as he probably would with- 
 out thinking of the underlying principles, or was 
 compelled to rely upon his own resources, the sched- 
 ule which he would produce would be substantially 
 on the basis of this mathematical calculation. There 
 is equally substantial basis, agreeing with sound rea- 
 son, for distinctions in rates between different classes 
 and commodities, which it is not necessary for pre- 
 sent purposes to specify. A tariff thus constructed 
 and impartially adhered to would be equitable as be- 
 tween all customers, and would admit of the freest 
 competition in trade between individuals and locali- 
 ties. The long haul rate would always be the sum 
 of the two local rates less two station expenses, 
 which would be as it should be ; that is to say, if a 
 shipment were made from New York to Chicago, and 
 then reshipped to St. Paul, there would be the ex- 
 pense at both the receiving and the forwarding sta- 
 tions at Chicago, which would not be incurred if the 
 shipment were made directly from New York to St. 
 Paul. The companies are entitled to this additional 
 expense, and no more. As here used, the word " ex- 
 pense " includes a reasonable profit for the services 
 performed. 
 
DIA.OBAM NO. 1. Represents the Fbimal Mathematical TARnT. 
 
 The figures at the bottom represent miles, the figures at the side, cents 
 per cwt. , the diagonal lines the rates. To illustrate its use : To find the 
 rate on third-class goods for 180 miles let the eye follow up the 180 mile 
 line, which is perpendicular, till it reaches the third-class rate line ; then 
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HOW TARIFFS GREW. 47 
 
 Starting with this primal form of tariff, it is pro- 
 posed to trace it through its various stages of evolu- 
 tion to the chaos of the present ; noting from time 
 to time the most important changes and the causes 
 of them, from the manager's point of view. To com- 
 prehend these changes, different tariffs must be ex- 
 amined in detail and compared with one another. 
 But as schedules of rates are of necessity a mass of 
 figures, readers could hardly be expected to spend 
 the time and labor necessary to make examinations 
 and comparisons from pages of columns of figures. 
 Hence there has been prepared a series of diagrams 
 which will show the facts at a glance. 
 
 Diagram No. 1 represents the primal, impartial, 
 mathematical schedule, built upon the basis which 
 has been stated. 
 
 This schedule is uniformly systematic. A class 
 which bears a higher rate than another at one station 
 maintains that relation at every station ; for if there 
 is reason for charging more for transporting dry 
 goods than for transporting coal for the distance of 
 ten miles, the same reason applies for similar differ- 
 ences for every other distance. Why should the prin- 
 ciples of this tariff ever be changed ? In answer- 
 ing this question, space will permit the mention of 
 only a few of the almost countless arguments which 
 are continually being presented to managers as rea- 
 sons why changes, or at least exceptions, should be 
 made. 
 
 (1.) The first is in relation to the wheat traffic, 
 to which reference has already been made. About 
 half the line is newly built, and for the reasons 
 stated in a previous chapter, the manager thinks 
 it for the interest of both the road and the people to 
 
48 THE RAILWAY PROBLEM. 
 
 induce some man with sufficient capital to engage in 
 building elevators and buying wheat. As an induce- 
 ment, lie agrees to lower the rate on wheat to his man 
 from a certain point, say two hundred miles out, to 
 the end of the line ; but while doing this he sees no 
 reason why he should lower the rate proportionately 
 on the first two hundred miles, where the business is 
 already established. Who can say that, from the man- 
 ager's point of view, there does not seem to be reason 
 in this ? So the wheat line in the diagram is broken 
 at the two hundred mile point, or bent downward. 
 
 (2.) At about the same two hundred mile point 
 the State has established its capital, and quite a 
 young city has sprung up. A bright, active young 
 man waliis into the manager's office, and represents 
 that he has capital and experience, and desires, if the 
 railway company will make concessions in the mat- 
 ter of rates, to start a wholesale grocery house at the 
 state capital. He promises great things, — a jobbing 
 centre, manufacturing population, etc. The man- 
 ager listens, is convinced, and reaches up to the gro- 
 cery line on the diagram and pulls it down at the 
 two hundred mile point to encourage the jobbing 
 in groceries, leaving it where it was at all other 
 points. The dry goods jobber asks the same conces- 
 sion, and having made it for one, the manager makes 
 it for the other. 
 
 (3.) The coal miner comes in. He says: "Mr. 
 . Manager, the people on the west end of your line 
 burn but little coal ; wood is too cheap to admit of it 
 unless you can reduce your rate. The rate for one 
 hundred and fifty miles is |2 per ton. The coal 
 costs $1 at the mines ; plus the freight, it costs $3 
 one hundred and fifty miles away. At this price I 
 
DIAGRAM NO. 2. 
 Bepresents the primal mathematical distorted by a few special rates. 
 
 
 
 
 
 
 
 
 
 
 
 
 
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HOW TARIFFS GREW. 49 
 
 can sell some coal in competition with wood ; if you 
 could continue that rate to the end of your line, I 
 could increase my trade to include all your terri- 
 tory, while with your present rate I can do but lit- 
 tle." The manager is in doubt, but the road is new, 
 business is light, stockholders are clamoring for more 
 earnings, and, in the hope that it will amount to 
 something, he consents, and flattens the coal rate from 
 the one hundred and fifty mile point. 
 
 (4.) Then comes the lumberman. He says : " Mr. 
 Manager, I don't know anything about railroading, 
 and I think your lumber rate is low enough ; but if 
 you could make a little concession at the state capi- 
 tal and at the extreme end of your line, I think I 
 could sell a good many more cars of lumber at these 
 two points. You know the capital is growing, and a 
 good many settlers are going out beyond the end of 
 the track, and that town at the end is growing. I 
 think it would be a good thing for both of us." 
 The manager still has some doubts, but, for the same 
 reasons that governed him before, he comes to the 
 same conclusion as he did in the case of the miner. 
 He now makes a downward kink in the lumber line 
 at the two hundred mile point, and another at the 
 extreme end. 
 
 These are but specimens of the almost countless 
 applications for special rates for special reasons which 
 seem to have force in them. 
 
 Diagram No. 2 represents the condition of the 
 manager's schedule after he has made special arrange- 
 ments with the wheat buyer, the grocery and dry 
 goods merchants, the coal miner, and the lumberman. 
 It would be difiicult to show, on so small a scale, its 
 appearance after the " butcher, the baker," and " the 
 
50 THE RAILWAY PROBLEM. 
 
 candlestick maker" have been dealt with. It has 
 lost its symmetry, weakened the hold on the prin- 
 ciples of its construction, and is adrift on the sea of 
 discrimination, dealing with a prodigious number of 
 isolated transactions without any fixed rule. 
 
 The transition from a government of law, founded 
 upon reason and fixed principle, to a government by 
 chance or by the will of the manager is complete ; 
 and this has been brought about without the compli- 
 cations arising from competitive railways. Under- 
 standing the facts, no one would be inclined to impute 
 any but the purest motive to the managers, the 
 desire best to conserve the interests of their compa- 
 nies. But it must be evident that, having deserted 
 the fixed rule for determining rates, the most impor- 
 tant function of railway management, the manager 
 is thereafter compelled to deal separately with an 
 enormous number of disorganized and separate rates, 
 having no cohesive ties, but each based upon orders 
 direct from headquarters. As a matter of fact, 
 although the companies from time to time issued 
 printed schedules of rates, up to the going into effect 
 of the Interstate Commerce Law in 1887, no consid- 
 erable shipper regarded them, but secured a special 
 rate on each shipment. 
 
 It will be seen at once how discrimination tends to 
 build up important towns at certain points, such as 
 i the supposed state capital and the end of the line, 
 in the illustrations. Lowering the rates at these 
 points had a tendency to draw population and busi- 
 ness to these localities as naturally as water flows 
 downhill. The " long haul " theory has always been 
 potential in causing managers to favor the localities at 
 the western end of their lines. It is evident that, as 
 
HOW TARIFFS GREW. 51 
 
 long as the tariff is constructed on the mathematical 
 principle which gives a uniform profit upon each mile 
 of haul, a ton of freight which is hauled four hun- 
 dred miles will give double the profit that will accrue 
 from a ton of freight hauled two hundred miles. 
 Hence, under these circumstances, a manager who 
 was interested in making profits for his company 
 would naturally look with more favor upon building 
 up a large city at the end of his line, where, generally 
 speaking, he would get a four hundred mile haul, than 
 at the middle of his line, where he would get only a 
 two hundred mile haul. Therefore it is easy to see 
 how the long haul at proportionately long rates might 
 become popular from the manager's point of view. 
 This was undoubtedly the original long haul theory, 
 the words " long haul " being supplemented with the 
 important addendum, " at proportionately long rates." 
 The propensity of Americans to abbreviate language 
 robbed the phrase of its addendum, so that "long 
 haul," pure and simple, became the catch-word of the 
 traffic departments, and, from the common habit of 
 substituting words for ideas, the " long haul," regard- 
 less of rates, became a controlling maxim. Thus, for 
 many years before the advent of the Interstate Com- 
 merce Law, the rate between Chicago and the Mis- 
 souri River towns and St. Paul and Minneapolis 
 (four hundred to five hundred miles), then the ter- 
 mini of the Western roads, was but little more than 
 the rate from Chicago to the Mississippi River towns 
 of Burlington, Rock Island, Clinton, and Dubuque 
 (two hundred miles), the intermediate country being 
 charged much higher rates except at competitive 
 points. This has worked a great injustice to the 
 latter cities. Thirty years ago they were nearly 
 
52 THE RAILWAY PROBLEM. 
 
 as important in respect to trade and population as 
 they are at present, and relatively to the surrounding 
 country more important ; while St. Paul, Minneapo- 
 lis, Omaha, and Kansas City, then mere trading posts, 
 have now, largely by reason of such discrimination, 
 become important cities of national repute. 
 
 It seems impossible that any set of men could be- 
 come so befogged by a form of words as to suppose 
 that it was profitable for a railway to haul a ton of 
 freight five hundred miles at substantially the same 
 price as for hauling it two hundred miles, yet a ref- 
 erence to the tariffs of these railways would tend to 
 show that such is the fact. 
 
 This long haul policy has done, and is now do- 
 ing, great mischief to the corporations as well as to 
 the people. The towns which have profited by it 
 during the last thirty years have become, instead of 
 terminal stations, but midway stations on transcon- 
 tinental lines ; and if the long haul craze continues, 
 they will probably suffer for the next thirty years in 
 the same way that the Mississippi River towns have 
 for the past thirty years. 
 
 The management of railways may find some excuse 
 for the error of breaking loose from the rule (the 
 writer believes that it was an error) in the fact of 
 the newness of the business. All the other great 
 departments of business have a history ; they have 
 had their childhood, their youth, and their maturity. 
 Their history has created certain traditions or un- 
 written codes of law which experience has proved 
 must not be disregarded. Thus, mercantile pursuits, 
 insurance, banking, etc., have traditions founded 
 upon sound principles, and yet thousands of men who 
 have never thought about, and perhaps would be in- 
 
HOW TARIFFS GREW. 53 
 
 capable of comprehending, the underlying principles, 
 simply by following the traditions of the craft are 
 successful merchants, bankers, etc. So the principles 
 of trade and finance in a more comprehensive sense 
 have been studied by some of the ablest minds, and 
 the result of some centuries of thought, through a pro- 
 cess of imperceptible dissemination and absorption, 
 has pervaded the minds of successive generations 
 with certain broad principles of recognized impor- 
 tance which have become a common heritage. But 
 the business of railway transportation has no history, 
 no traditions, no peculiar heritage. Little thought 
 has been given to its theory or to its underlying 
 principles. Now just past fifty years of age, its life 
 has been one of action instead of philosophical inquiry 
 into the underlying laws which control its peculiar 
 operations. It is the contention of the writer that 
 such laws exist, and must of necessity control. In 
 nature, many phenomena, as those of electricity, ap- 
 parently the most irregular and capricious, by patient 
 thought and investigation have been found to be 
 governed by fixed and uniform laws, and by under- 
 standing these laws men have been able to utilize 
 many of the most subtle powers. Buckle, in dis- 
 cussing the apparent incongruities of history, says : 
 " Whoever is at all acquainted with what has been 
 done during the last two centuries must be aware 
 that every generation demonstrates some events to be 
 regular and predictable which the preceding genera- 
 tion has declared to be irregular and unpredictable : 
 so that the marked tendency of advancing civiliza- 
 tion is to strengthen our belief in the universality of 
 order, of method, and of law. The expectation of 
 discovering regularity in the midst of confusion is so 
 
54 THE RAILWAY PROBLEM. 
 
 familiar to scientific men that among the most emi- 
 nent of them it becomes a matter of faith." 
 
 The writer believes that every effect in the matter 
 of railway traffic has its cause ; that the relation 
 between that cause and its effect is governed by fixed 
 and definite laws, which, unlike statute laws, may 
 not be disregarded with impunity; and that these 
 laws have their foundations in the principles of jus- 
 tice and equity. Believing this, he can have little 
 confidence, in the present crisis of railway affairs, that 
 the proposed remedies of consolidations, pools, etc., 
 will be efficacious, if the plain principles of equity in 
 the constructions of tariffs are ignored. It is the 
 opinion of most men in the traffic departments of 
 railways that the business is of such a nature that 
 it cannot be laid out with practically mathematical 
 precision. They think that the business of rate- 
 making is of such a kaleidoscopic character that rates 
 which are well enough to-day nnist be changed to- 
 morrow, — not, however, in their entirety, but as to 
 particular rates, individuals, and localities ; and that 
 these changes should be left to the judgment of the 
 agent on the spot, subject to no fixed rule or instruc- 
 tion except " to get the business, — never mind the 
 rate." As long as any company persists in keeping 
 mobs of soliciting agents in the field, under such in- 
 structions, it must be conceded that it is necessary 
 for other lines to counteract these illegitimate meth- 
 ods. 
 
 But in the more comprehensive sense the writer 
 is compelled to take issue, for many reasons. First 
 and foremost among these reasons he would place the 
 plain duty of the companies to deal justly and im- 
 partially with all their patrons, — leaving individuals 
 
HOW TARIFFS GREW. 55 
 
 free to compete with individuals, and localities with 
 localities, without interference from the companies. 
 If, however, railway transportation is to be regarded 
 simply as an article of commerce, and the soliciting 
 of traffic as the equivalent of the ordinary drumming 
 for sales of merchandise, such practices are clearly 
 illegitimate, and will prove destructive. 
 
 The principles of commerce require that the sell- 
 ing price must bear a relation to cost. The vender of 
 merchandise, in order to act with intelligence, must 
 know the cost of each article, — not the average cost 
 of the different articles, — and this is quite possible. 
 On the other hand, it is quite impossible for the ven- 
 der of railway transportation to tell even approxi- 
 mately the cost of each shipment. For example, 
 when a ticket agent sells a ticket from St. Paul to 
 Chicago, who can estimate approximately what it 
 will cost his company to carry that particular pas- 
 senger? The average cost of running a passenger 
 train between St. Paul and Chicago may be closely 
 estimated; but the train on which this passenger 
 travels may carry a large number of passengers or it 
 may carry but few, and in the former case the cost 
 would be much less than in the latter. It can be 
 positively stated that these is no means of ascertaining 
 the cost of transporting any particular shipment of 
 property or persons. Our knowledge upon this ques- 
 tion of cost has to do with aggregations rather than 
 with units, and with averages rather than with par- 
 ticulars, and herein lies an essential distinction be- 
 tween merchandise and transportation. Each article 
 of merchandise having a known cost, the itinerant 
 vender knows whether each sale terminated in a profit 
 
56 THE RAILWAY PROBLEM. 
 
 or a loss, and the employer knows it, too. If it is sold 
 at less than cost, with a few well-understood excep- 
 tions, it is a loss, which no sophistry of reasoning can 
 disguise. This is not true of transportation. There 
 is an apparently logical although dangerous line of 
 reasoning which seems to prove that a railway com- 
 pany can carry indefinite quantities of merchandise 
 for nothing without appreciable loss. 
 
 The most familiar illustration is the passenger 
 train which " is running any way," and consequently 
 such persons as would not travel and pay their fare 
 can be passed free without cost. This specious argu- 
 ment is applicable to a certain extent to the freight 
 traffic. In this argument lie the mischief and danger 
 of making rates in detail, uncontrolled by fixed rules. 
 It is admitted that special or " cut rates," as they are 
 called, may be of temporary advantage to a company, 
 but the end is loss. 
 
 The most effective answer to this argument is the 
 fact that although tariffs have been managed in this 
 way, the railways have done fairly well. Why not 
 let well enough alone ? It is admitted that the ar- 
 guments stated above would have force as applied to 
 ordinary men, but railway managers have been of 
 such superior ability that they have so far been able 
 to set aside these apparently sound principles, and 
 have successfully managed their properties upon their 
 personal judgment from day to day. But is this true ? 
 Have the managers made the railways prosper, or 
 have the railways made the managers ? Have not the 
 growth and prosperity of the business of the country 
 contributed to their success ? The writer ventures to 
 doubt the superior business sagacity of the men who 
 
HOW TARIFFS GREW. 57 
 
 are engaged in managing the traffic departments of 
 railways, and would attribute the financial success of 
 the railways in the past to the inherent value of the 
 property and to the growth of the country, rather 
 than to the superior sagacity displayed in their man- 
 agement. 
 
CHAPTER VII. 
 
 COMPETITIVE TABIFFS. 
 
 The development of tariffs upon competitwe lines 
 is based upon principles different from those upon 
 non-competitiYe lines. In order to understand this, 
 the relations existing between the managers of the 
 different companies must be considered. In their 
 personal affairs and in their relations to their own 
 companies, their conduct has been, as a rule, above 
 reproach. But it is probably not putting it too 
 strongly to say that, as managers, they have always 
 been intensely jealous of each other's power, and no 
 manager has ever been known to scruple at any 
 means to cripple a rival in his autocratic position. 
 Among themselves their word has been worthless. 
 Their agreements as to territorial boundaries and as 
 to methods of conducting traffic have no sooner been 
 made than broken. As long as the country contigu- 
 ous to any line was poor and possessed no important 
 towns or developed industries, there was nothing to 
 excite the greed of a rival, and the territory was un- 
 molested. But as soon as an important industrial 
 centre sprang up, the rival company would build a 
 branch line to it, and then the chieftains would at 
 once put on their war paint and make ready for the 
 fray. To the writer's mind, there is a striking simi- 
 larity between the railway managers of twenty years 
 ago and the Scottish chiefs of say four hundred years 
 
COMP-ETITIVE TARIFFS. 59 
 
 ago. One historian described the latter as follows : 
 " The ferocious Highland chiefs were always at hand. 
 Anything which bore even the resemblance of wealth 
 was an irresistible excitement to their cupidity. They 
 could not know that a man had property without 
 longing to steal it, and, next to stealing, their great- 
 est pleasure was to destroy." 
 
 In predatory incursions upon one another's terri- 
 tory, the stockholders of the railways followed their 
 managers as readily as did the Scottish clansmen 
 their chiefs. But the important difference between 
 the two lies in the machinery of the stock exchange, 
 by means of which there is as great a chance of 
 profit to the camp followers from destruction as from 
 stealing. At the present day, a railway raid promises 
 one of two profits, — either a division of the booty, 
 or a profit from destruction, secured by selling stocks 
 " short," — while the poor Highlander's alternative 
 profit was a broken head. 
 
 During the era of raids and reprisals a great many 
 competitive points were established. The history of 
 one is the history of all. Before there was competi- 
 tion, the manager would claim that his rates were as 
 low as was consistent with justice to his company. 
 But as soon as another road was built, or even before 
 it was completed, he would reduce his rates, some- 
 times fully one half. Then the new road would re- 
 duce them still lower. After this, a system of buying 
 business by private bargain with individual shippers 
 would follow. So, by rapid strides, the rates would 
 be reduced to nearly nothing, at which point they 
 would remain for months together. Then would fol- 
 low a truce and a partial restoration of rates ; then 
 a relapse, to be succeeded by another truce. But 
 
60 THE RAILWAY PROBLEM. 
 
 until the enactment of the Interstate Commerce Law 
 these l(jw rates at competitive points did not affect 
 those of intermediate localities. 
 
 The making of rates at competitive points became 
 a question not so much of what was fair and reason- 
 able as of what could be obtained against the watch- 
 fulness of the other company. Low rates were made, 
 not to encourage new trade, as was the case with 
 non-competitive roads, but in order to secure the 
 largest share of the business, and, failing in that, to 
 prevent the other company making a profit. The 
 principle of these methods seems to have been the 
 essence of the Highland instinct of four hundred 
 years ago. In the early years each company was 
 ambitious to claim the merit of having caused the 
 last reduction ; but of late, since the matter has gone 
 beyond control, and disaster seems imminent, each 
 charges the responsibility of the first cut upon the 
 other, and claims that it has accepted the rates only 
 from compulsion. If we turn to Diagram No. 1, and 
 imagine each line of rates pulled down to any haphaz- 
 ard level at each competitive point, without being 
 changed at intermediate stations, it would represent 
 a tariff as thus far developed. It would represent 
 the tariffs about as they existed when the Granger 
 agitation first commenced, with very low rates at all 
 competitive points, thus discriminating between local- 
 ities ; and with different rates to different individuals, 
 thus discriminating between persons. 
 
 It is believed that the causes which first developed 
 these characteristics in competitive tariffs have been 
 fairly stated. 
 
 At the outset they were undoubtedly induced more 
 by ill temper and a disposition to measure strength 
 
COMPETITIVE TARIFFS. 61 
 
 than by any settled convictions of true business pol- 
 icy. Later on, it is true, after the attack was made, 
 the companies attempted to justify them on business 
 principles. But it must be conceded that these spe- 
 cious arguments were an afterthought. 
 
 These tariffs once established, year by year the 
 rate at competitive points gradually sank lower and 
 lower. These reacted to a certain extent upon non- 
 competitive rates ; for, as the difiEerence increased, 
 the logic of figures began to assert its influence. By 
 sophistry men might appear to justify a difference ; 
 but when the rate for hauling a ton of freight four 
 hundred miles was only say one third of the rate for 
 hauling a ton two hundred miles over the same road, 
 it seemed too absurd, and it was usually remedied by 
 lowering the higher rate. 
 
 If it be found impossible, in the light of the pre- 
 sent day, to justify these methods, either on business 
 principles or on the selfish plea of advantage to the 
 companies, it must be admitted that they were 
 strictly in accordance with precedents which had 
 been established by older companies in older commu- 
 nities, and therefore it ought to be conceded that the 
 managers, in establishing them, might have been un- 
 conscious of acting against the best interests of their 
 companies. 
 
 Indeed, it was not immediately apparent that they 
 were prejudicial to the companies. At that time the 
 amount of business at competitive points, compared 
 with the business at non-competitive points, was rel- 
 atively much less than it is now ; therefore, since the 
 non-competitive rates were held up, the cutting of 
 competitive rates only slightly affected the aggregate 
 revenues. But when the discriminating tariff was 
 
62 THE RAILWAY PROBLEM. 
 
 continued in force, it was found that, year by year, 
 more and more business centred at the points of 
 competition. Every new manufacturing establish- 
 ment, new business ventures of every kind, and con- 
 sequently population, sought such localities as a mat- 
 ter of course. Statistics show that the entire net 
 increase of population from 1870 to 1890, twenty 
 years, in Illinois, Wisconsin, Iowa, and Minnesota 
 (except the new section, which has not yet felt the 
 effects of discrimination), was in cities and towns 
 possessing competitive rates ; and further, that all 
 the non-competitive towns and villages decreased in 
 population. Thus it happened, as time passed, that 
 the depleting effect of these methods upon the rail- 
 way treasuries became more apparent as the popu- 
 lation and business of competitive points increased, 
 and the relative population and business of the non- 
 competitive territory decreased. 
 
 This is a fine illustration of the rule hereafter to 
 be considered, that by a natural law of trade the 
 lowest rate will in the long run drive out of use 
 the higher rates, and finally become the basis of all 
 tariffs. 
 
 In later years, various influences have had a share 
 in the development of these competitive tariffs. The 
 larger part of the every-day actions of mankind is 
 controlled by habit or custom rather than by thought ; 
 by imitation, as parrots' talk, rather than by the la- 
 borious methods of reasoning out conclusions from 
 fundamental principles. Hence, by far the greater 
 number of minds possess that quality which, for want 
 of a better name, may be called conservatism ; that 
 is, the habit of thinking everything good that is old, 
 and everything right that is established. Methods 
 
COMPETITIVE TARIFFS. 68 
 
 which had once become established, in process of 
 time came to be regarded as correct. After they had 
 continued for a long time, there was apparently a 
 very strong argument in their favor, because, relying 
 upon them, various manufacturing and important 
 business investments had been made, which would 
 become less valuable, and in some instances value- 
 less, if the rule were changed ; and hence to return to 
 an impartial tariff would, in a sense, do injustice. 
 This argument has had, and possibly ought to have, 
 great weight. 
 
 Returning to the influence which custom has, even 
 upon the minds of practical men, it may be noted 
 that, after an extremely low rate has been in effect 
 a sufiBciently long time for it to become familiar, it 
 gradually comes to be regarded, if not as standard, at 
 least as a level which it is safe to reach in order to 
 meet an emergency. For example : the rate of seven 
 and one half cents per hundredweight on flour from 
 Minneapolis to Chicago, four hundred and ten miles 
 by the shortest line, which gives an average of only 
 about three mills per ton per mile, less than half the 
 average cost of transportation, in the minds of the 
 people, and even in the minds of the traffic officials, 
 is beginning to be regarded as a fair rate. The so- 
 liciting freight agent, in nfs mad chase after tonnage, 
 has this precedent always in mind. The shippers of 
 other commodities reason that if the railways can 
 afford to carry flour and wheat at that rate, they can 
 surely carry other things at comparatively low rates. 
 Indeed, it is difficult to explain why corn, oats, coal, 
 etc., all being of less value, and able to be handled 
 with equal facility, should be charged a higher rate 
 than wheat and flour. Here again is seen the strong 
 
64 THE RAILWAY PROBLEM. 
 
 tendency of the lowest rate to drive out the higher, 
 and to become the standard rate. 
 
 In every other business, and in every department 
 of the railway business except the traffic department, 
 mathematics plays a conspicuous part. The mer- 
 chant and manufacturer calculate their profits by 
 percentages on the cost price. The engineer, in con- 
 structing a railway, recognizes the fact that all 
 curves are composed of tangents, which bear fixed 
 mathematical relations to each other, which must be 
 observed, and that his gradients must be carefully 
 and mathematically worked out and measured. The 
 superintendent, in making out a time card for run- 
 ning his trains, recognizes the necessity of mathemat- 
 ical accuracy, for the question as to where and when 
 two trains shall meet cannot be guessed at or left to 
 chance. But in the traffic department it is differ- 
 ent. The average traffic officials may truthfully be 
 said to detest mathematics as the " devil does holy 
 water." They boldly say that it is impossible to 
 make a tariff of rates based on strict mathematical 
 principles, like a time card for running trains. This 
 prevailing idea is probably based upon the fact that, 
 with their limited mathematical knowledge, they are 
 aware of no method of reaching similar results with- 
 out such infinite labor as scaggers the human mind to 
 contemplate, or possibly upon the further fact that, 
 as the business is now conducted, such schedules 
 would evidently be useless. An inspection of the 
 present tariff will therefore show no relative values 
 between the rates or between the classes of freight. 
 A class or commodity which is rated higher than 
 some other class or commodity at one station, at the 
 next station may have changed positions, and be rated 
 lower. 
 
COMPETITIVE TARIFFS. 65 
 
 It would seem that, in naming rates, traffic officials 
 regard each rate as isolated, holding no fixed rela- 
 tions to others ; hence, in preparing schedules, it is 
 thought that any arbitrary figures which may be 
 agreed upon can be enforced, provided the compa- 
 nies keep faith with each other. Reasoning from 
 these premises, they have organized associations for 
 the purpose of agreeing upon rates. The fact that 
 these associations have accomplished so little towards 
 maintaining the rates thus agreed upon would seem 
 to indicate that the premises are false. 
 
 Reflection upon the workings of these associations 
 has convinced the writer that the premises are false, 
 and that the failure of such agreements to produce 
 the results expected should be attributed not so much 
 to the want of good faith as to the overpowering 
 force of the law controlling them, which is as yet 
 undiscovered, or at least is not fully understood. The 
 writer's conclusion is that fiat rates rest upon the 
 same basis as fiat money. 
 
 It is now understood that there is a well-defined 
 law controlling the value of fiat money which is 
 more powerful than legislative enactments. If its 
 basis of security is only fifty cents as compared with 
 a gold dollar, it will find its level of relative value ; 
 and being worth but fifty cents, it will pass in com- 
 merce for no more. It is true, the sovereign power 
 may compel it to be called a dollar, and to pass nomi- 
 nally as such, but in that case the gold dollar passes 
 out of use as money. So if, by agreement of all 
 the companies, or otherwise, it is attempted to make 
 two rates of different intrinsic values pass for the 
 same value, the attempt must surely fail. As all 
 values are relative, so all rates have relative values, 
 
66 THE RAILWAY PROBLEM. 
 
 which must be ascertained and recognized in mak- 
 ing schedules before the schedules can be maintained 
 in their integrity. And whenever efforts have been 
 made to fix one rate too low, expecting to recoup the 
 loss by fixing some other rate too high, the cheap 
 rate has in the long run displaced the higher rate, 
 just as the cheap dollar displaces the dear dollar, and 
 finally the lowest rate becomes the standard of all 
 rates. 
 
 The writer believes this law is universal in its ap- 
 plication, to non-competitive as well as to competitive 
 lines, and that the present ever-decreasing scale of 
 rates is the direct action of the law, forcing the 
 whole schedule down towards the level of the last 
 " cut rate." 
 
 In a limited sense the law has long been recog- 
 nized, as where one company makes a low rate, all 
 competitive companies hasten to meet that rate; 
 and, latterly, traffic men have been forced to recog- 
 nize the intimate relations which exist between widely 
 separated rates, such as the rates between Chicago 
 and St. Paul and those between Chicago and Kansas 
 City. 
 
 To the writer's mind, the proofs of the existence 
 of such a law are very convincing. The effects of 
 an unreasonably low rate, and of the tendency of 
 all movable business to concentrate at competitive 
 points in order to make available the lowest rates, 
 have already been noticed. Whoever has occupied 
 the responsible and difficult position of dictator of 
 rates realizes the tremendous power in the logic of a 
 low rate. " Why should you charge me a higher rate 
 on corn, which is worth only thirty cents per bushel, 
 than on wheat, which is worth one dollar per bushel ? " 
 
COMPETITIVE TARIFFS. 67 
 
 is the simple question so frequently asked and so im- 
 possible to answer. " Why should you charge me 
 twelve cents per bushel for hauling wheat from Kan- 
 sas City to Chicago [480 miles], when you charge 
 only four cents and a half for hauling the same 
 from St. Paul to Chicago [410 miles] ? " and " Why 
 do you charge me as much, or more, for hauling a 
 bushel of corn to Chicago from a point two hundred 
 miles distant as from a point five hundred miles dis- 
 tant ? " There are other sample questions which the 
 poor freight agent is continually required to parry, 
 because he can make no logical answer. And these 
 questions, propounded hour after hour, day after day, 
 by all classes of people, have a tremendous effect. 
 But, under present conditions, the agent is powerless 
 to raise the lower rate ; he can only reduce the higher. 
 These questions also suggest the point of view that 
 the general public, courts, juries, and legislatures are 
 bound to take, and the strong tendency to crowd the 
 higher rates down to the level of the lowest. So 
 when railway companies, as is frequently the case, 
 make secret rates with large shippers of cereals, coal, 
 lumber, or any other commodities, no matter how 
 jealously the secret is guarded, the fact soon becomes 
 apparent that the lower rates have displaced the 
 higher rates, from the fact that these favored ship- 
 pers do all the business. 
 
 The same result is noticeable in the so - called 
 " wholesale principle " of making large differences in 
 favor of shipments of carloads as against less quanti- 
 ties. Under this rule shippers never use the higher 
 rate except in rare cases where it cannot be avoided. 
 
 Another powerful influence in the development of 
 competitive tariffs is the large number of persons 
 
68 THE RAILWAY PROBLEM. 
 
 who have been entrusted with autocratic power to 
 make rates. The treatment of rates separately, and 
 as bearing no mathematical relation to each other, 
 necessarily makes the detail labor of the traffic de- 
 partment so prodigious that it is altogether beyond 
 the physical ability of any one man. In working out 
 the printed rates alone, the mass of figures is so volu- 
 minous that no human intellect can grasp them. To 
 illustrate this point, it may be stated that the number 
 of separate printed tariffs in legal effect on a large 
 system at any given time may be approximately esti- 
 mated at three thousand, some of them containing 
 thirty or forty large-size pages of solid columns of 
 closely printed figures. It goes without saying that 
 under such circumstances this work must be left to 
 subordinates and clerks ; and while they are all issued 
 under the signature of the chief, as a matter of fact 
 he has examined but few of them, and such exami- 
 nation as he is able to make is of a most cursory char- 
 acter. Taking these facts into consideration, and 
 remembering the further practice which has come 
 into vogue of meeting " not only the cut rates that 
 have been made, but also those that it is thought 
 probable or possible will be made by rival com- 
 panies," and of doing this quickly on the spot, it will 
 not be difficult to understand how large a number of 
 persons must be entrusted with the high prerogative 
 of making rates, as well as how the chaotic condition 
 of the tariffs comes about. 
 
 In a work of this kind it is hardly possible to enu- 
 merate all the influences which have been effective 
 in the development of these tariffs, but it is desirable 
 to mention at least two more. The power of large 
 shippers to combine and offer their business for 
 
Missing Page 
 
DIAGRAM OF FREIG 
 
 BETWEEN 
 
COMPETITIVE TARIFFS. 69 
 
 sale as a whole, in order to secure lower rates, or to 
 give it to one out of several competing lines as a sort 
 of offset to any attempt of managers by combination 
 to increase hitherto unprofitable rates, has had a 
 most important influence of late years. The enact- 
 ment of the so-called Interstate Commerce Law is 
 the only other influence that can be brought into 
 comparison. The immediate and marked effect of 
 the law was the leveling of certain intermediate and 
 non-competitive rates to the standard of the low com- 
 petitive rates, which is another illustration of the 
 tendency of all rates to seek the low rates as the 
 standard. 
 
 Having set forth some of the more important in- 
 fluences which have been actively at work for more 
 than twenty years in evolving a schedule of competi- 
 tive rates, it seems proper that this chapter should 
 end vyith a presentation of the tariff which has been 
 evolved. For this purpose Diagram No. 3 has been 
 prepared, which accurately represents the published 
 legal tariff which existed on one of the lines (and 
 practically on all) between Chicago and Minneap- 
 olis (420 miles), in the autumn of 1888, after the 
 Interstate Commerce Law had gone into effect. It 
 is freely charged in railway circles, and presumably 
 it is true, that since that date the custom of paying 
 rebates to individual shippers, to which the terrors of 
 the Interstate Law at first seemed to put an end, has 
 again come into vogue, so that even many of the 
 rates shown on the diagram, low as they appear, are 
 not in use, having been driven out by the lower rates. 
 
 For those who will take the trouble to study the 
 diagram critically, and reflect upon its significance, 
 it will prove an interesting light upon the question 
 
70 THE RAILWAY PROBLEM. 
 
 under consideration. The first thing that will strike 
 the mind is, that the schedule must have been the 
 result of chance, for no ingenuity could have planned 
 such a snarl. It will also be noticed that most of the 
 rates are the same for a haul of 250 miles as for one 
 of 420 miles. This level line of rates between the 
 250 and 420 mile points is due to the operation of 
 the " long and short haul clause " of the Interstate 
 Commerce Law. Previous to the enactment of the 
 law these intermediate rates were higher than at the 
 two points mentioned. 
 
 The rate on flour and wheat is the same for 80 
 miles as for 420 miles, the line being level between 
 these two points ; on coal it is the same for 200 
 miles as for 420 miles ; on cement, the same for 120 
 miles as for 420 miles; on coarse grains, which in- 
 clude corn, oats, barley, etc., from the 180th mile 
 to the 420th mile it is almost twice as much as that 
 on flour and wheat. The rate on soft coal for a haul 
 of from 10 to 180 miles is lower than that on flour ; 
 from that point on to 420 miles, it is higher. The 
 rate on class E, 70 miles' haul, is less than six cents, 
 while on packing-house products for the same dis- 
 tance it is more than twice as much, or twelve and a 
 half cents ; but for the 420 miles' haul class E rate 
 becomes the highest. For 140 miles' haul class E 
 rate is lower than the wheat and flour rate, the ce- 
 ment rate, the packing-house produce rate, and the 
 lumber rate ; but before it reaches the 420 miles' 
 haul it has gone above all of them. 
 
 Compare class B with fifth class, and for 110 miles 
 class B is lower ; for the next 50 miles it is higher ; 
 for the next 10 miles lower ; then for 30 miles higher ; 
 then for 50 miles considerably lower; then for 160 
 
COMPETITIVE TARIFFS. 71 
 
 miles the same. But why enumerate what the dia- 
 gram shows at a glance ? 
 
 If any one wishes fully to understand the chaos of 
 rates, let him imagine at each important town nu- 
 merous merchants and manufacturers having special 
 secret rates, each believing he has the lowest, and all 
 but one probably being fooled in that respect, and 
 then the diagram, in connection with his imagination, 
 will partially illustrate the facts in existence. Could 
 anything be more unreasonable and inconsistent, and 
 is it any wonder that the managers, by agreement or 
 otherwise, are unable to maintain and enforce such a 
 tariff ? 
 
CHAPTER VIII. 
 
 RAILWAY PASSES. 
 
 A HISTORY of the causes leading to the enactment 
 of the so-called Granger laws which should make 
 no mention of the free-pass system would indeed be 
 incomplete. While from the commercial and indus- 
 trial points of view, the carrying of a large number 
 of passengers free produced comparatively unimpor- 
 tant results, yet it was one of the greatest, perhaps it 
 may be called the greatest, of irritants to the public 
 mind. In the nature of things, this practice cannot 
 be carried on secretly, like the paying of rebates on 
 shipments of freight ; therefore this class of discrimi- 
 nation is every day flaunted before the eyes of envi- 
 ous and jealous neighbors as well as the whole travel- 
 ing public. 
 
 The origin of the free pass is not definitely known, 
 but it is not improbable that it was first used as a 
 means of paying for certain kinds of valuable and 
 legitimate services, alike advantageous to the com- 
 pany and satisfactory to the persons rendering the 
 services. Had its use been confined strictly and on 
 business principles to such purposes, it would per- 
 haps have been unobjectionable. But that was im- 
 possible. That which costs nothing is worth nothing. 
 As the trains were running, and it would not add 
 materially to the cost to carry a few more passen- 
 gers, the managers have always regarded a pass as 
 costing the company nothing, and hence they seemed 
 
RAILWAY PASSES. 73 
 
 to be justified in buying anything, no matter how 
 worthless, if it could be thus paid for. And why, if 
 passes cost nothing, may they not be given away? 
 The recipients of these favors took the same view 
 relative to the cost of transportation; therefore many 
 who would have been too proud to accept the gift of 
 a few dollars in money did not hesitate to accept free 
 passes. To individuals free passes were of value ; to 
 many, of great value. At first they were given spar- 
 ingly to the more important personages in the com- 
 munities, who had little occasion to travel, and as a 
 compliment, something like Christmas cards; then to 
 a larger circle in payment of trifling services ; then 
 to legislators, the executive officers of government, 
 the judicial officers, and to all the clerks and em- 
 ployees of the several departments of state ; then to 
 county boards, and the various county officials, clerks, 
 and employees ; then to city and town boards, their 
 various officers, etc. ; then to that very numerous class 
 known as " political workers ; " and finally to every 
 person supposed to be able to do something to aid a 
 railway company in case of political or judicial emer- 
 gency, or, if not so propitiated, to do harm. 
 
 In the beginning passes were recognized as favors, 
 for which the recipients were bound to make a suit- 
 able return. But it was not long before the recipi- 
 ents came to regard the passes they were accustomed 
 to receive as a right, and then began to ask as a favor 
 that the members of their families and their friends 
 might also ride free. . This favor being granted, the 
 natural sequence was that it soon came to be regarded 
 as something to which the petitioners were entitled, 
 and the free privileges would then be asked as a favor 
 for some new class. As those who had passes trav- 
 
74 THE RAILWAY PROBLEM. 
 
 eled often, and those who paid their fares traveled but 
 seldom, it soon happened that, while the number of 
 persons who rode free were but a fraction of the 
 whole population, nearly half the mileage of local 
 passengers was free. This became a source of great 
 irritation to the public mind. A citizen who paid his 
 fare was bound to sit in close proximity to a neigh- 
 bor who paid no fare. The wife and daughters of a 
 village family who could go to the city only occasion- 
 ally, on account of the cost, naturally became envious 
 of their neighbors who could go as often as they de- 
 sired, without cost. They, at least, regarded the pass 
 system as an unjust discrimination. There can be no 
 doubt that the system had a demoralizing effect. 
 
 The small suitor who had an action pending against 
 a company for the value of a calf, before a justice of 
 the peace, regarded his case as likely to be prejudiced 
 by reason of the justice carrying a free pass. In the 
 nature of things, constables, and even sheriffs, were 
 supposed to be more or less subservient on account 
 of such favors. Even the higher judicial and execu- 
 tive officers could not be held to be entirely impar- 
 tial, while the influence of free passes upon the legis- 
 lative mind was marked. In those days railway fares 
 were five cents per mile, which the farmer, mechanic, 
 laborer, and the great body of the poor were com- 
 pelled to pay, while the more important and richer 
 people were permitted to ride for nothing. Thus 
 the masses reasoned that charging five cents per mile 
 to one half the travel, and carrying the other half 
 free, was equivalent to carrying all for two and one 
 half cents, and therefore they were paying the ex- 
 penses of carriage of their more prosperous neighbors, 
 and were being charged twice as much as they ought 
 to pay. 
 
RAILWAY PASSES. 75 
 
 All these influences had a distinct effect upon the 
 public mind. " To charge one person two prices for 
 the sake of carrying another free, who was better 
 able to pay," which was the usual form of expres- 
 sion, seemed outrageous, and of course excited ani- 
 mosity in the minds of many against the companies ; 
 but the feeling of greatest bitterness was in the minds 
 of those who had once been favored with passes, but 
 who, by reason of having gone out of office or because 
 of other changed conditions, could no longer get them. 
 To be deprived of a privilege once enjoyed is always 
 a hardship, and, if the privilege has been long con- 
 tinued, an injustice. So a pass, when granted, seems 
 a compliment, and for the moment excites emotions 
 of friendship ; but its withdrawal seems an insult, and 
 excites bitter and lasting enmity. 
 
 As a rule, the men who had once been members 
 of the legislature, aldermen, county commissioners, 
 sheriffs, constables, etc., and, as such, enjoyed for a 
 year or more the privilege of riding free on all the 
 railways, having passed out of office and being again 
 compelled to pay fares, became, on this account, most 
 uncompromising enemies. And as these men were 
 numerous, and distributed as to residence over whole 
 States, and were sometimes active in public affairs, 
 they did much to point out the inconsistency of 
 " charging one man five cents in order to be able to 
 carry another free." 
 
 Thus, during the Granger agitations, the pass sys- 
 tem, because containing the sting of personal pique, 
 has been, possibly, a more active influence than the 
 more important matters pertaining to the evil effects 
 of discrimination. 
 
CHAPTER IX. 
 
 FAIRNESS OF LEGAL RATES. 
 
 The principal causes which induced the so-called 
 Granger legislation have been stated in the preYious 
 chapters. 
 
 Nearly all the complaints which were made against 
 railway management were based upon the practice 
 of discrimination in one form or another. As a rule, 
 it was not that the rates were too high, but that there 
 was too much difference between the competitive and 
 non-competitive rates for both to be just and reason- 
 able; consequently, either one was too low, or the 
 other too high. But reasoning from the universal 
 principle of trade, that a vender, in fixing a price for 
 his goods, asks as much as they are worth, the con- 
 clusion was that the lower rate was high enough, and 
 therefore the higher rate must be extortionate. 
 
 The latter conclusion, it seems to the writer, would 
 have been legitimate, and such as in ordinary busi- 
 ness transactions would have been conclusive ; yet, 
 notwithstanding the intense excitement growing out 
 of the profound feeling that they were suffering in- 
 justice at the hands of the companies, it is to the 
 credit of the moderation and fairness of the much- 
 abused Grangers, that they listened to the state- 
 ments of the companies, as to the true condition of 
 affairs. The explanation which the companies were 
 compelled to make amounted to an humble confes- 
 
FAIRNESS OF LEGAL RATES. 77 
 
 sioii on the part of the managers that, in their con- 
 tests with each other to secure the lion's share of the 
 tonnage, they had made rates so low at competitive 
 points that, if compelled to carry all business at pro- 
 portionately low rates, it would ruin their respective 
 companies. They could produce no particular evi- 
 dence of the facts embraced in their explanation, but 
 the legislature accepted their simple statement be- 
 cause it looked plausible; and, instead of making 
 the basis of its schedule of rates the lowest rates of 
 the railway companies, it took a fair average of all 
 the rates, so that, as near as could be calculated, the 
 aggregate revenues of the companies should not be 
 affected. It lowered the higher rates slightly, and left 
 the companies free to raise the lower rates to the 
 same level, which the legislature expected and desired 
 that they would do. 
 
 Had the companies pursued this course, the pur- 
 pose of the legislature to destroy unjust discrimina^ 
 tion would have been accomplished, and the revenues 
 of the railways would not have been depleted. But 
 the companies chose a different line of policy, which 
 will be pointed out later. 
 
 Right here is the evidence of the truth of the con- 
 stant assertion on the part of the majority of the 
 people, as represented by their legislatures and rail- 
 way commissioners, that the object of so-called 
 Granger legislation is not to destroy the value of 
 railway property, but to protect other property from 
 being destroyed by the methods of railway manage- 
 ment ; or, in a word, to prevent discrimination. Here 
 is also the evidence of the fair-mindedness with 
 which the people have dealt with this question. 
 
 By the ordinary rules of evidence and the usages 
 
78 THE RAILWAY PROBLEM. 
 
 of business, the legislatures would have been justified 
 in holding the fact that the companies made the lower 
 rates voluntarily as conclusive admission against 
 themselves that these were sufiBciently remunerative. 
 But the legislatures, although acting in such times of 
 intense public excitement as are usually conducive to 
 "retaliatory injustice," and having power to exact 
 the lowest rate, nevertheless fixed upon the average 
 rates. This has been the course of subsequent legis- 
 lation. 
 
 In view of the feeling of distrust of legislatures 
 and of legislative commissions which exists in the 
 minds of uninformed owners of railway securities, 
 this fact is of sufficient importance to be repeated by 
 way of emphasis. Consequently, it is again stated 
 that, during the whole course of so-called Granger 
 legislation, no legislature has established by law, nor 
 has any railway commission promulgated, a schedule 
 of rates so low as materially to reduce the revenues 
 of the companies, had the companies adopted the 
 schedules and enforced them as a whole. On the 
 other hand, have the representatives of the companies 
 treated the legislatures and commissions with equal 
 fairness and consideration ? It would seem that they 
 have not. From the beginning, the laws and the 
 commissions have been made the scapegoat of every 
 misfortune which has befallen the companies in the 
 matter of reduced rates and revenues. For the pur- 
 pose of illustration the following quotation is made 
 from the moderate accusations of a railroad presi- 
 dent, who is certainly the peer of any both in intelli- 
 gence and in candor of statement. It is from a re- 
 cently published pamphlet on " The Stock Market 
 and the Railway Problem," by O. D. Ashley, Esq., 
 
FAIRNESS OF LEGAL RATES. 79 
 
 president of the Wabash Railway Company. Mr. 
 Ashley says : — 
 
 No business can thrive under such adverse conditions. 
 Railway property is threatened with destruction, and until 
 the threat is removed the alarm wiU not only continue, but 
 increase. The money invested in railway securities was 
 supposed to be in property having equal protection under 
 the laws of the land with other property. As common car- 
 riers, railways were, of course, known to be subject to cer- 
 tain regulations, but their rights to a fair compensation for 
 the services performed had never been questioned before 
 the persecution commenced by Congress and followed up 
 by state legislatures. But a new doctrine, as dangerous 
 as it is new, has been introduced, which claims not only to 
 regulate the compensation which carriers shall receive, but 
 to decide arbitrarily whether such compensation is reason- 
 able or not. In other words, shippers, who are interested in 
 obtaining the lowest rates possible, may unite in complaints 
 to the interstate or state commissions ; and if the commis- 
 sioners, upon such investigation as they may choose to di- 
 rect, conclude that a reduction should be made, it is thus 
 ordered. It is true the railway companies may appeal to the 
 courts, as in many cases they have done, but the intent of 
 the law, as interpreted by the commissioners, is to assume 
 and maintain this power over the earning capacity and 
 profits of property which is as much entitled to equitable 
 consideration as property in real estate, manufactures, or 
 trade. The laws applicable to common carriers, it is well 
 understood and admitted, are intended to protect the pub- 
 lic from exorbitant demands, and certain privileges are 
 granted to the carriers, in exchange for which the right of 
 just and proper regulation is claimed and exercised. In the 
 days of stages and baggage wagons, it would have been 
 within the purview of the law to fix the rates of transporta- 
 tion and of fare as a condition of license, just as carriage 
 rates are regulated by municipal law ; but such powers were 
 
80 THE RAILWAY PROBLEM. 
 
 seldom, if ever, exercised, and would never have been sub- 
 mitted to for a day if the rates had been less than a fair 
 compensation for the service performed, for the remedy was 
 in the hands of the owner of the stage or wagon. He would 
 simply refuse to perform the service ; and if the charges 
 were unreasonably low, that is, unremunerative on the cap- 
 ital and labor required to do the work, no one else would 
 undertake it. This remedy is not available to railway car- 
 riers. The work of transportation must go on, and neces- 
 sarily will go on, so long as operating expenses can be 
 earned, including the cost of repair and maintenance. The 
 stoppage of railway operation would paralyze the business 
 of the whole country. It could not and would not be 
 permitted. 
 
 As compared with the common carriers in existence before 
 the age of steam, those of the present day are perfectly 
 helpless against oppressive legislation except by tedious and 
 expensive processes through the courts. This assistance 
 has been invoked to some extent and with good results, but 
 railway companies have not yet pressed the constitutional 
 questions involved with earnestness and vigor. The strug- 
 gle is bound to come, unless public sentiment forces legisla- 
 tion to respect vested rights ; but belief in the strong sense 
 of justice which is a fundamental idea of our republican 
 form of government, and which has hitherto been a ruling 
 principle with its people, inclines railway managers to wait 
 for its influence as investigation and experience prove the 
 error and wrong perpetrated. 
 
 Meanwhile the railway trouble continues, productiveness 
 diminishes, and the stock market stagnates. 
 
 After reading this extract, one would come to the 
 conclusion that in Mr. Ashley's opinion the legisla- 
 tures of the country, for the moment at least, had 
 ignored " the strong sense of justice which is a fun- 
 damental idea of our republican form of government, 
 
FAIRNESS OF LEGAL RATES. 81 
 
 and which has hitherto been a ruling principle with 
 its people," and had enacted laws which prescribed 
 rates so unreasonably low that they were " unremu- 
 nerative on the capital and labor required." 
 
 That the rates now collected by railway compa- 
 nies in the West are, as a matter of fact, thus low, 
 there can be no question ; but to claim that these 
 rates are prescribed by law is so misleading that it 
 becomes a matter of surprise that a man of Mr. Ash- 
 ley's standing should haye made such a statement. 
 
 In proof of this the writer would call attention to 
 the last annual report of the Wabash Company, of 
 which, as has been said, Mr. Ashley is president. It 
 shows the average rate per ton per mile collected on 
 that system during the year to be only about six mills. 
 
 The lowest schedule of rates which has yet been 
 made by any commission in the Western States is 
 that now in force in Iowa. The lowest rate in this 
 lowest schedule is the soft-coal rate, and the lowest 
 rate for the longest haul on soft coal is five mills 
 per ton per mile ; and it is certain that if the Wa- 
 bash Company had applied the Iowa schedule as a 
 whole to its entire business, its average rate, instead 
 of being only six mills, would have been about 
 ten mills. That there were conditions, growing out 
 of competition between the companies themselves, 
 which prevented the Wabash Company from collect- 
 ing more than six mills is assuredly not the fault of 
 the law, the legislature, the commissions, nor the 
 public. 
 
 As a further example of the disposition of railway 
 management to make scapegoats of these laws, the 
 following quotation is made from the annual report 
 of the Chicago and Alton Railroad Company : — 
 
82 THE RAILWAY PROBLEM. 
 
 The position of a railroad commissioner in the West is 
 not such as permits him to act independently, as his judg- 
 ment may dictate. He must reduce rates when the public 
 demand reduction, and he is often reminded that such is his 
 duty. "We believe that without exception the commission- 
 ers have been disposed to deal as fairly with railroad in- 
 terests as they have been permitted to do by the people 
 whose servants they are. 
 
 No railroad has been constructed except under authority 
 conferred by the people, and it must be assumed that the 
 people have never permitted a railroad to be constructed by 
 their authority, without intending to permit its managers to 
 collect such charges for transportation over it as might be 
 found necessary to pay operating expenses and at least a 
 small annual revenue on capital actually invested. 
 
 Has this been permitted since rates have been limited by 
 the people, acting by their agents, the railroad commis- 
 sioners, and can rates be reasonable which are too low to 
 produce that, result on the great majority of the railroads ? 
 
 Perhaps the best answer may be found in the results of 
 railway traffic under commissioners' supervision and direc- 
 tion as to rates in Illinois. 
 
 To avoid extending our inquiry further than is necessary 
 for the purpose of answering the question stated, we will 
 limit it to the first twelve years under commissioners' rule 
 and to such railroads as were to be found during that period 
 in connection with, or crossing your lines in Illinois within 
 two hundred miles of East St. Louis — including yours, 
 twenty-four in number. 
 
 ' During that period of twelve years, twenty of the twenty- 
 four railroads referred to were forced into bankruptcy, as 
 follows : five of them within one year, three within two 
 years, four within three years, one within four years, three 
 within five years, one within eight years, two within nine 
 years, and one at the end of twelve years. 
 
 The territory we refer to, we believe, is unequaled in fer- 
 tility of soil, coal deposits,' and other resources, by any other 
 
FAIRNESS OF LEGAL RATES. 83 
 
 of equal extent in the United States. Other railroads have 
 been constructed in the State during that period and later, 
 which have met the same fate. Can it be possible that 
 rates which produce such results are reasonable ? 
 
 Kates fixed by the commissioners in all the Western 
 States are now lower than the rates were under which 
 many roads were forced into bankruptcy as already stated. 
 We may weU fear that like causes will produce like results. 
 
 Western railroads are compelled to sell their services 
 at such prices as may be fixed by the people they serve. 
 Slaves in the South served their masters on similar terms. 
 But the law dealt more kindly with the slave. His master 
 was required to support him. 
 
 Western legislatures and railroad commissioners have 
 step by step reduced the maximum rates which railroads 
 are permitted to charge, until such rates are now lower than 
 are charged on railroads in any other part of the world on 
 which no larger amount of traffic is found, and this has 
 been done where prices for labor and supplies required 
 to maintain and operate railroads are higher than in any 
 other country. 
 
 Assuming that the statement of the number of 
 railway companies which have gone into bankruptcy 
 in the district mentioned is correct, the assumption 
 that these disasters resulted from the low rates fixed 
 by the commission of Illinois is manifestly incorrect. 
 
 The facts are that the more prosperous (because 
 better located) railways in Illinois voluntarily make 
 rates materially lower than the commissioners' sched- 
 ules, and the rates so made fix the rates that the less 
 prosperous lines can obtain ; it is therefore evident 
 that if these roads were forced into bankruptcy by 
 reason of low rates, it was the rates made by so-called 
 " competition " which bankrupted them, not those 
 
84 THE RAILWAY PROBLEM. 
 
 made by the commissioners. It is more probable 
 that rates had little to do with their misfortunes, but 
 that they were due to bad location and improvident 
 construction. The truth of the conclusion in regard 
 to rates will appear by comparing the average rate 
 of the principal Illinois lines with the commissioners' 
 tariff. The average rate per ton per mile for the 
 past year on the Chicago and Alton was nine and 
 two tenths mills ; on the Illinois Central, ten and three 
 tenths mills ; on the Chicago, Rock Island and Pacific, 
 nine and seven tenths mills. The lowest rate on 
 the lowest class (coal) in the Illinois commissioners' 
 tariff for the longest haul is six and one half mills, 
 and if this tariff had been applied to all the business 
 of these three companies, it is probable that it would 
 have increased their earnings from thirty to forty per 
 cent. 
 
 In view of such facts as these, the following state- 
 ment of the vice-president of the Chicago and North- 
 western Railway, in a published interview in 1888, 
 seems incomprehensible. Mr. Sykes said : — 
 
 Our equipment is fuUy employed, hut we are working at 
 low rates, and find it hard work, in common with other 
 roads in the Northwest, to earn as much as last year, al- 
 though doing a much greater business. This is owing to 
 the concessions in prices for transportation, and more par- 
 ticularly the effect of the operation of the Interstate Law, 
 and of the reductions in rates by the local State authoritiea 
 and powers that claim to regulate the business of the rail- 
 roads, more especially in Minnesota and Iowa. Eailroad 
 men throughout the Northwest, and all over the country, 
 look with grave concern upon the last named phase, and 
 hope the tide of popular feeling, which at present finds 
 expression in the arbitrary and oppressive, if not actually 
 
FAIRNESS OF LEGAL RATES. 85 
 
 destructive, course toward the railroads, will abate before 
 the properties are rendered valueless alike to the pubKc and 
 to the owners of capital invested. 
 
 General G. M. Dodge, president of the Denver 
 City and Fort Worth Railway, and a director of the 
 Union Pacific Company, who takes the other view of 
 the case, replied to these statements of Mr. Sykes as 
 follows : — 
 
 I claim that no reduction has ever been made by legis- 
 lation that has not first been made by the railroad com- 
 panies, lasting from three to nine months. Their example 
 has led the people of the States to believe that, if they can 
 carry freight and passengers at the cut rates and special 
 rates that they make in their fights, they could do it under 
 a law, and so far as I know, no answer has ever been made 
 to that. During the session of the legislature of Iowa, when 
 it had in consideration these rates, there were for six months 
 in Iowa rates upon everything that were far below the rates 
 made by the Iowa commission. Of course the rates made 
 by the roads and the rates by the commission were ruinous. 
 The whole trouble comes from the disposition of every 
 traffic manager in the country to obtain something he is not 
 justly entitled to. 
 
 Mr. Sykes makes a great ado about what the legislators 
 do and about the harm they have done to the companies, 
 but if he will go back two years and take up the rates that 
 his own road has made in Illinois and Iowa to meet other 
 rates, and compare them with the lowest rate that has ever 
 been placed upon him by legislation, he will find that the 
 rates of the railroad commission have been generous com- 
 pared to his own. I think the owners of property should 
 understand fully that all these low rates in the West have 
 been made from the examples set by the managers of their 
 own roads, and that they should put the fault right where it 
 
86 THE RAILWAY PROBLEM. 
 
 lays. I have no sympathy with the rates that have been 
 made in Iowa by the railroad commission, but I think that 
 they were made, not only with the view of enforcing them, 
 but with the view of having the comparison made by the 
 owners of the property ; and I think if you compare the 
 rates made by the commissioners with the rates of the rail- 
 roads through Iowa upon which they are based, it will be 
 very hard for the railroads to attack; the commission's rates. 
 I only speak of Iowa by reason of having a personal know- 
 ledge of it. So far as my knowledge goes, it is the same in 
 Kansas, in Missouri, and in Nebraska. 
 
 To my certain knowledge, the Union Pacific Road, of 
 which I am a director, is doing a large amount of its busi- 
 ness 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 ; and I know to-day 
 that there is a large demand upon their road for every car 
 they have got, to do a paying business. 
 
 The truth is, — and it is time the investing public 
 should be told the truth, — it is not the so-called 
 "Granger laws," nor the Interstate Law, nor the 
 acts of commissions, which have reduced the rates of 
 transportation to the present unprofitable level, but 
 the mismanagement of the companies. For more 
 than twenty years the managements of Western rail- 
 ways have been engaged in the prosecution of rate 
 wars, in which it was impossible to decide which was 
 acting on the offensive and which on the defensive. 
 Each manager has surrounded himself with a stand- 
 ing army of freight and passenger agents, contract- 
 ing agents, soliciting agents, advertising agents, trav- 
 eling agents, clerks, typewriters, and runners. In 
 every important city, and in many of the unimpor- 
 tant towns, detachments of each of the companies 
 have been permanently quartered, occupying the most 
 
FAIRNESS OF LEGAL RATES. 87 
 
 expensive offices at the most conspicuous corners of 
 the most important streets. Hardly a day has passed 
 during twenty years without active engagements in 
 each city, in which all ihe forces have been under 
 fire. No expense has been spared to equip them with 
 the latest and most expensive arms. The arts of the 
 printer, the lithographer, and the engravers on wood 
 and steel have been exhausted. Theatre tickets, 
 credits at livery stables, and " et ceteras," have been 
 supplied without stint and " no questions asked." 
 The expenses of the standing armies have been enor- 
 mous ; but, like all standing armies, they are con- 
 sumers and not producers. Their mission is to de- 
 stroy. All of them together have not in twenty 
 years produced a single ton of freight. Their whole 
 duty is to get the freight which others have produced 
 routed over their line, " honestly if they can, but get 
 it." After two nations have been at war until the 
 resources of both are exhausted, and a treaty of 
 peace has been concluded, the first step towards mak- 
 ing it permanent is to disband their armies, or at any 
 rate withdraw them to the interior. As long as they 
 are on the frontier, face to face and under arms, no 
 continuous peace is expected. 
 
 From time to time during the twenty years' war, 
 the chiefs have made solemn compacts of peace. 
 These treaties have been signed, sealed, and delivered 
 with all the necessary solemnities, but not once have 
 they withdrawn or disbanded their forces. For a few 
 days at a time have they slept with their guns loaded, 
 only to renew the contest on the first pretext, with 
 renewed vigor and destructiveness. This has been 
 the true cause of the destruction of revenues, instead 
 of " Granger laws" or " State Commissions." 
 
88 THE RAILWAY PROBLEM. 
 
 The managers know it, but they have been too 
 cowardly to avow it. " Hast thou eaten of the tree 
 whereof I commanded thee that thou shouldest not 
 eat ? " was demanded many years ago. " And the 
 man said, The woman, whom thou gavest to be with 
 me, she gave me of the tree, and I did eat." 
 
 This sneaking, pusillanimous trait of the first man 
 has descended through more than two hundred gen- 
 erations of men to the railway management of the 
 nineteenth century. And the managements said, 
 " The laws and the commissions, they gave me of the 
 tree, and I did eat." 
 
CHAPTER X. 
 
 A LEGISLATIVE DIALOGUE. 
 
 The first so-called "Granger law" in Minnesota 
 was enacted at the legislative session of 1871. The 
 act contained only ten sections. It fixed maximum 
 rates for both freight and passengers, and prohibited 
 all kinds of discriminations. The provisions of the 
 law were not much regarded by the railway authori- 
 ties of the time ; but the principle, for the first time 
 announced in Minnesota, namely, the authority of the 
 State to fix rates, was regarded as of the gravest im- 
 portance. 
 
 The companies denied that the State had such au- 
 thority, and it was to this point that the principal 
 discussion, which on either side was not always of 
 the most temperate character, was directed. It is 
 needless to say that the companies regarded such an 
 authority with suspicion and alarm. 
 
 As has been said, and for the reasons stated, an in- 
 tense interest in the proposed law was manifested by 
 the people, who felt that they had been injured ; and 
 perhaps it is not putting it too strongly to say they 
 believed that they had been cheated and defrauded 
 by the methods of discrimination which had been 
 practiced by the companies. The discussions occu- 
 pied the most of the legislative session, to the exclu- 
 sion of other business. Among the senators who 
 championed the cause of the railway, one of the 
 
90 THE RAILWAY PROBLEM. 
 
 ablest and best equipped for argumentation was the 
 president of a railway company whose securities 
 were principally owned by residents of the State. 
 The friends and paid lobbyists of the railway com- 
 panies filled the lobby of the Capitol by day and the 
 corridors of the hotels by night, and the railways' 
 side of the question was presented before the com- 
 mittee by able lawyers as well as by practical and 
 expert railway officials. After about sixty days' con- 
 sideration, the bill was passed almost unanimously, 
 only two senators voting in the negative. 
 
 Omitting the technical, legal, and constitutional 
 arguments, an outline of the opinions then current 
 may be best presented in the form of a dialogue be- 
 tween the railways and the people. 
 
 Railways. The bill that has been introduced in 
 the legislature assumes that the State has authority 
 to fix the rates at which freight and passengers must 
 be carried by the railways. This is the assertion of 
 a new principle in legislation, and the mere introduc- 
 tion of the bill has been the cause of great alarm to 
 the owners of our railways. To them it seems to 
 threaten possible confiscation of their property. In 
 the building of these railways a large amount of cap- 
 ital has been invested. The individuals who fur- 
 nished this capital are the owners of the railways. 
 The railways are property precisely as a building or 
 a farm is property. The owner of a building or a 
 farm has the undisputed right to say upon what terms 
 he will allow another person to occupy or use it. He 
 may determine both the extent of the use and the 
 price to be paid for it. If the legislature may estab- 
 lish the tolls on a railway, why, on the same principle, 
 may it not establish the rent for a farm ? In a sense. 
 
A LEGISLATIVE DIALOGUE. 91 
 
 a railway company is a merchant, having for sale 
 transportation, which it owns. By virtue of owner- 
 ship, it may fix the price at which to sell transporta- 
 tion. If the legislature may interfere, and establish 
 the price at which we must sell our transportation, 
 why may it not fix the price at which wheat, tea, 
 coffee, and other articles of merchandise shall be 
 sold ? Is not this a dangerous precedent to establish ? 
 
 Such legislation is very diflferent from a usury law, 
 which fixes the maximum rate of interest on money, 
 because money is transportable. If the rate of inter- 
 est is not satisfactoi'y to the owner, he can take his 
 money elsewhere. But our property is fixed. In the 
 nature of things, it cannot be moved to another State 
 or country. For this reason, if the State has the 
 power claimed, it would be unfair to exercise it. If, 
 before the roads were built, the power had been as- 
 serted, individuals would not have risked their money 
 in them, and you can be assured that if this bill be- 
 comes a law no more railways will be built. 
 
 People. What you say about the ownership of 
 the railways,' the right incident to ownership, and 
 the fixed character of the property, are matters of 
 grave consideration. We are strongly impressed by 
 the fact that the capital invested in railways can- 
 not be moved beyond the jurisdiction of the law, as 
 money can be, in case the rates as fixed by the legis- 
 lature are too low to suit the owners' idea as to the 
 value of its use. We wish to do the railways no in- 
 justice ; but, while respecting their rights, we feel 
 bound to protect our own. 
 
 Your statement, that the legislative regulation of 
 rates is new, is incorrect. Before railways were 
 known, laws were enacted regulating the rights and 
 
92 THE RAILWAY PROBLEM. 
 
 duties of common carriers ; this was so long ago that 
 these statutes are now called common law. By the 
 common law, you, as common carriers, could not re- 
 fuse to do business for any one. You could not set 
 a higher price for your services than they were rea- 
 sonably worth ; if you were voluntarily paid more, 
 and afterwards the payer chose to demand back the 
 excess, he could recover it at law. In these impor- 
 tant particulars, the law has always regarded the rail- 
 ways differently from farms or buildings. The owner 
 of a farm can rent it or not as he chooses, and he 
 may demand a price much above what it is reason- 
 ably worth ; if the price is accepted and paid, that is 
 the end of it, for no suit would lie to recover the 
 excess. Your claim, that railways are venders of 
 transportation, equally fails in view of your common- 
 law obligations ; for the ordinary relation of buyer 
 and seller cannot exist where the seller is compelled 
 by law to sell at a reasonable price. 
 
 You must admit that the proposition for the leg- 
 islature to regulate your rates of toll is no new legis- 
 lative principle, but is as old as the common law. 
 We desire the legislature to fix reasonable rates only ; 
 or in other words, we seek to have the legislature 
 supplement the common law by definitely naming 
 the rates which the common law had fixed before you 
 commenced to build your roads, and which every in- 
 dividual investor knew before he invested his money 
 in your securities. 
 
 Railways. It is very well to say that you want 
 only reasonable rates named ; but how can a legisla- 
 tive body composed of farmers, lawyers, and coun- 
 try merchants determine what are reasonable rates ? 
 What do such men know about the cost of transpor- 
 
A LEGISLATIVE DIALOGUE. 93 
 
 tation by railways ? And what do they know about 
 our business in any of its details ? 
 
 People. They know very little, of course ; but you 
 will be invited to tell them all you know about it, 
 and especially what constitutes a reasonable rate. 
 Lest we may do you injustice, we shall ask only that 
 the rates fixed shall be based on the rates you are 
 now charging ; and if an error is made let it be in 
 your favor, by fixing the rates a little higher than 
 your present rates rather than lower. What we wish 
 to accomplish is to equalize rates, by lowering the 
 higher non-competitive rates and leaving you free to 
 raise the competitive rates to the same standard, so 
 as not to reduce your revenues, but to protect us 
 against the losses incident to your present policy of 
 discrimination. We want the State to decide be- 
 tween us, and do justice to you as well as to our- 
 selves. 
 
 Hallways. How absurd! Here is a controversy 
 between the railways on one side and the people on 
 the other, and you talk about doing justice by refer- 
 ring it to the decision of the legislature, a tribunal 
 chosen entirely by the people. Such a one-sided ref- 
 erence is not justice, but a tra,vesty upon justice. 
 
 People. We cannot deny that the tribunal is im- 
 perfect ; but it is the best, and indeed the only one 
 we have. There are two alternatives : the managers, 
 or the legislature. We have tried the managers; we 
 cannot think the legislature will do worse. Besides, 
 it cannot be said the railways have no voice in the 
 election of legislators. An inspection of the statute 
 books would almost lead a stranger to think that 
 heretofore the lawmakers had been elected entirely 
 by the companies. Up to this time you have asked 
 
94 THE RAILWAY PROBLEM. 
 
 for no law whicli has not been enacted. Up to this 
 time your managers have been left at liberty to make 
 and collect such rates as pleased them, although, as 
 we claim, it is not only the right but the duty of the 
 legislature to fix your tolls. Your managers have 
 exercised their high prerogative in such a manner 
 that it threatens to destroy a large portion of our 
 property. We now ask protection from their unjust 
 discriminations. 
 
 Railways. We claim that instead of destroying 
 values we have created about all the values there are 
 in the West. What would your farms, your town 
 and city real estate, your wheat, oats, corn, cattle, 
 hogs, etc., be worth without railways ? 
 
 People. We admit that property in this State 
 would be of little value without railways. On the 
 other hand, what would railways be worth without 
 the people ? 
 
 We think one question as pertinent as the other, 
 and both must be answered alike. 
 
 You came to the countiy first, and we followed. 
 You invited us to come and buy your then worthless 
 lands and cultivate them, so as to make business for 
 your then worthless roads. Your coming into the 
 country was no favor to most of us, for if you had 
 not come first we never should have come. If we 
 had continued to reside in Europe and the Eastern 
 States, it would have been a matter of little impor- 
 tance to us what the value of land, or grain,. or live 
 stock in Minnesota might be. On your invitation 
 we came. We bought your lands. By our labor 
 we have improved them and made them produce 
 freight for your railways, and by this means have 
 made the lands you still own salable at advanced 
 
A LEGISLATIVE DIALOGUE. 95 
 
 prices. The railways and the people have pioneered 
 together, each being mutually beneficial to the other. 
 Farms in Minnesota are almost worthless without 
 railways ; railways are alike worthless without farms. 
 
 As we have commenced, so must we continue. 
 The people, not individuals, are the customers of the 
 railways. The great merchants and large shippers 
 are the men you deal with directly, but it is the people 
 who ultimately pay the bills. We are mutually de- 
 pendent upon each other, and therefore ought to deal 
 fairly with each other. It is not fair for you to treat 
 one better than another. Impartiality on your part 
 is what we ask and what we will have. 
 
 Railways. But still we feel distrust. It seems 
 like letting the shipper, who is always anxious to get 
 low rates, have the entire say as to what rates he will 
 pay. That would be unfair ; and we fear it would 
 soon lead to practical confiscation. 
 
 People. As it appears to us, the fault of your rea- 
 soning is that you do not distinguish between the 
 people, in their individual capacity, and the State, rep- 
 resented by the legislature. The individuals are your 
 customers, not the State. If the relation between 
 the railways and their customers were the same as be- 
 tween vendor and vendee, both parties being at lib- 
 erty, if they did not agree upon the price, to decline 
 the trade, then the matter of rates might be left to 
 individual judgment. But there is no such relation. 
 By common law you are bound to sell, while by the 
 law of his necessities, which is more pressing and 
 more effectively executed, the individual is compelled 
 to buy. Under such circumstances we hold it would 
 be equally unfair for either party to have the power 
 of making the rates. You might very well fear that 
 
96 THE RAILWAY PROBLEM. 
 
 the individuals, if the matter were left entirely to 
 them, might make your rates too low ; on the other 
 hand, the individuals have the same distrust of you. 
 One distrust has the same natural basis as the other, 
 and both are entitled to the same consideration. If 
 the absolute power to make rates should be left to 
 the will of each shipper from day to day, you may 
 very well fear, although you have had no experience 
 of it, that your property would soon be practically 
 confiscated. So, on the other hand, after entrusting 
 this tremendous power to your managers for several 
 years, our experience is that the property of many 
 citizens has been practically confiscated. Not only 
 has their property been deprived of a large part of 
 its value, but many of them have been driven out 
 of their chosen business and have been compelled 
 to seek other avocations for a livelihood. 
 
 Now, we do not ask you to let your customers fix 
 the rates, neither will we consent that your managers 
 shall fix them. We offer you the principle of arbi- 
 tration ; that is, that the most disinterested party 
 whose services can be obtained shall say what the 
 rates shall be. The arbitrator which we offer is the 
 sovereign State. The most important function of 
 the State is to decide between the subjects when just 
 such differences as these arise. The most important 
 business affairs, as well as more important matters 
 relating to life and liberty, are necessarily referred 
 to the State for arbitration. Why should not the 
 relation between railways and their customers be so 
 referred ? 
 
 Railways. The function you have mentioned is 
 judicial, not legislative. It should therefore be re- 
 ferred to the courts, not to the legislature. 
 
A LEGISLATIVE DIALOGUE. 97 
 
 People. There are both judicial and legislative 
 questions involved. It is clearly competent for legis- 
 latures to prescribe rules of evidence and of proce- 
 dure. Clearly, the legislature may and in the inter- 
 est of justice should change the burden of proof from 
 the plaintiff to the defendant, in cases where the evi- 
 dence is voluminous and difficult to extract from a 
 huge mass of accounts ; where all the evidence is in 
 the possession of the defendant, and he is familiar 
 with it and knows where to look in order to find it. 
 By fixing definite maximum rates and making them 
 prima facie evidence of reasonable rates the legisla- 
 ture thus changes the burden of proof. 
 
 If the legislature should make these rates too 
 low, it would present a judicial question in which the 
 courts would protect you. 
 
 This was the tenor of the discussion, which was re- 
 peated in every conceivable form of expression dur- 
 ing the session of the legislature. The companies 
 did not attempt to deny the charge of discrimina- 
 tion. They did attempt to justify it on the grounds 
 of necessity arising from competition, and of aid 
 required by new business enterprises, as has been 
 stated in previous chapters. The bill became a law 
 on the 6th of March, 1871, and the legislature ad- 
 journed. The railway companies never put the law 
 in force, or in the slightest degree paid any atten- 
 tion to its provisions. The only use they made of it 
 was as a scapegoat for the extravagant estimates 
 of earnings, which they had made in the East, in 
 order to bolster up the price of their securities and 
 to get money to extend their lines. 
 
CHAPTER XI. 
 
 STETJGGLB OF THE MANAGEKS. 
 
 SiKCE the companies ignored the existence of the 
 law of 1871, as a matter of course it did not alleviate 
 any of the evils of which the people complained. 
 
 But there was no further important legislation 
 until the session of 1873-74. The vendetta, which 
 has been mentioned, between the Chicago line and 
 the Lake Superior & Mississippi Railway Company 
 had then been going on for more than two years. 
 It was during this time that the Chicago company 
 first announced its great geographical transformation 
 policy of " making every station on its road as near 
 Chicago on Lake Michigan as Duluth on Lake Su- 
 perior." In many cases, the difference in distance 
 was fully two hundred and fifty miles ; for example, 
 one shipping point was four hundred and ten miles 
 from Chicago and one hundred and fifty-six miles 
 from Duluth. This difference it solemnly decreed 
 should be ignored for all time, and thus it laid the 
 foundation for the present rate per mile between 
 • Minneapolis, St. Paul, and Chicago, of three and one 
 half mills per ton, made on an annual shipment of 
 about 40,000,000 bushels of wheat and its product, 
 flour. Correspondingly low rates are fixed on coal 
 and similar important commodities. 
 
 To accomplish this purpose without depleting its 
 own treasury, and without increasing the difference, 
 
STRUGGLE OF THE MANAGERS. 99 
 
 too great alreadj', between local and competitiTe 
 rates, or without unfairly affecting values, was as im- 
 practicable as actually to move Lake Michigan two 
 hundred and fifty miles westward, or Lake Superior 
 a like distance toward the east. During the summer, 
 while Lake Superior was open to navigation, rates 
 were made so low to Minneapolis and St. Paul that the 
 price of wheat and other farm products, as well as of 
 general merchandise, was materially affected. The in- 
 creased value of wheat made farms which were acces- 
 sible to these markets materially more valuable than 
 farms two hundred miles nearer Chicago, on the same 
 line of railway. To prevent local people from taking 
 advantage of the St. Paul and Minneapolis rates, rates 
 between local stations and these points were made 
 sufficiently high. By this contrivance, so far as rates 
 were concerned, it made St. Paul and Minneapolis 
 only one hundred and fifty-six miles from Chicago, 
 when in fact they are over four hundred miles dis- 
 tant ; while local towns which are only one hundred 
 and fifty miles from Chicago were made over four 
 hundred miles distant, in regard to rates. The result 
 was that farms and town property located within 
 about two hundred miles of Chicago, which had be- 
 fore been more valuable, now became less valuable 
 than farms and village property which were within 
 reach of St. Paul and Minneapolis by independent 
 lines, although four hundred or even five hundred 
 miles away from Chicago. 
 
 Naturally enough, this transformation of values 
 had a tendency to cause migration of population and 
 business from the less to the more favored districts ; 
 and hence, as might be expected, the census of 1880 
 showed a large decrease of population in the local 
 
100 THE RAILWAY PROBLEM. 
 
 territory of the Chicago line and a large increase in 
 the more favored localities. 
 
 Having made such extremely low rates during the 
 season of navigation, it attempted to recoup its losses 
 by high rates in winter. This had a disastrous 
 effect upon the general business of the region. In 
 anticipation of the change, the merchants thought it 
 cheaper to pay interest than increased rates ; so they 
 would buy a six months' stock to last them through 
 the winter and have it shipped in before the close of 
 navigation. For the same reason, the wheat buyers 
 and millers would store their shipments, as far as 
 possible, during the winter months, so as to get the 
 low rates after navigation opened in the spring. 
 
 For carrying purposes large amounts of money had 
 to be borrowed; an operation always difficult, and 
 sometimes made disastrous by a change in the mar- 
 ket. As far as the company was concerned it caused 
 a congestion of business in the autumn, and a stag- 
 nation in the winter, instead of that steady stream 
 which is most profitable. 
 
 While these events were taking place the mutter- 
 ings of the approaching storm, not only in Minne- 
 sota but in other States, were distinctly audible to all 
 but the deaf. In the fall elections of 1873 it broke 
 forth. In spite of all the efforts of the managements, 
 in spite of a lavish expenditure of free passes and 
 " other good and valuable considerations," the people 
 elected legislatures in Wisconsin, Minnesota, Iowa, 
 and Illinois which were unfriendly to the companies. 
 
 When the legislatures assembled many intemperate 
 and unjust measures were proposed. The most in- 
 tense excitement on the subject prevailed, both in 
 and out of the legislatures ; and for a time it seemed 
 
STRUGGLE OF THE MANAGERS. 101 
 
 as though the people were prepared to confiscate 
 the railways. But better counsels prevailed. Each 
 legislature enacted laws fixing maximum rates, or 
 appointing commissioners clothed with authority to 
 establish rates, and prohibiting discrimination. In 
 details, although differing in principle, they were not 
 materially different from the Minnesota law of 1871. 
 The law of Wisconsin commonly known as the " Pot- 
 ter Law " was the most stringent, and fixed the low- 
 est scale of rates. 
 
 The agitation had become too widespread and the 
 opposition to the methods of the companies too in- 
 tense to admit of these laws being ignored with the 
 silent contempt shown towards the previous law. 
 The Wisconsin law, having been approved March 
 11, 1874, became effective by publication April 28. 
 Under the latter date, the president of one of the 
 most important railway systems in that State ad- 
 dressed a letter to the governor, notifying him that 
 the board of directors, having " sought the advice of 
 able counsel, and after mature consideration, believed 
 it their duty to disregard so much of said law as at- 
 tempts arbitrarily to fix rates of compensation for 
 freight and passengers." 
 
 As this letter was evidently prepared by the coun- 
 sel of the company, and was regarded, at the time it 
 was made public, as an able summing up of the rail- 
 way side of the case, both upon the law and the facts, 
 and as the legal argument has not before been intro- 
 duced, it is thought best to insert the letter in full. 
 It should be stated that about the same time there 
 was published a letter of similar tenor from the pres- 
 ident of the other leading road, as well as opinions of 
 two eminent jurists, the Hon. B. R. Curtis and the 
 
102 THE RAILWAY PROBLEM. 
 
 Hon. Wm. M. Evavts. The letter of Mr. Mitchell 
 must be regarded as the joint production of these 
 able men, edited by the no less able counsel of the 
 Chicago, Milwaukee and St. Paul Railway Company, 
 and may therefore be considered an exhaustive presen- 
 tation of the case from the companies' point of view. 
 
 Milwaukee, April 28, 1874. 
 His Excellency, William E. Taylor, Governor of Wis- 
 consin. 
 Dear Sik, — At the last session of the legislature, an 
 act was passed, entitled " An Act Relating to RaiLroads, 
 Express and Telegraph Companies in the State of "Wiscon- 
 sin," which assumes, among other things, to fix the tarifE 
 for freight and passengers, which the railroads of the State 
 may hereafter charge. This act arbitrarily divides the 
 railroads of the State into di£Eerent classes, and then de- 
 clares that one class shall charge one rate, another a differ- 
 ent rate, and a third stiU another rate of compensation for 
 performing the same or similar services, and affixes severe 
 penalties for a violation of its provisions. You are aware 
 that this species of legislation is entirely new in this State, 
 and in the broad and sweeping terms of this act is practi- 
 cally unknown to any of the States of the Union. The right 
 of a company owning a road to fix its rate of charges was 
 recently held in the Supreme Court of the United States, 
 to be " an attribute of ownership." Yet this law wholly 
 ignores that right, and not only deprives the owner of the 
 right to fix the compensation to be paid for its use, but arbi- 
 trarily fixes one price for one, and a different one for an- 
 other, without any inquiry as to whether the price fixed " is 
 a reasonable one or will afford a fair and adequate remun- 
 eration and return upon the amount of capital invested." 
 The obligation and promise which Chief Justice Dixon says 
 " springs from the act of incorporation arid invitation by the 
 State to persons to invest their money in the stock " of rail- 
 
STRUGGLE OF THE MANAGERS. 108 
 
 road companies, that " they shall receive a fair and reason- 
 able compensation for the money expended," is wholly dis- 
 regarded. The roads now owned and operated by the 
 Chicago, Milwaukee and St. Paul Railway Company were 
 all built under charters which provided that " the Board of 
 Directors shall have the right and power to regulate their 
 tolls," and that the company should have the right " to de- 
 mand and receive such sum or sums of money for f i-eight of 
 persons and property as they should from time to time 
 think reasonable." On this solemn faith and pledge these 
 roads were built, and their right to a fair and reasonable 
 return for the capital invested became settled and fixed be- 
 yond the power of the legislature to abrogate or destroy. 
 These roads are property created under the sanction of law, 
 and are owned by the company. To arbitrarily deprive 
 the company of them or their beneficial use, by act of the 
 legislature, is depriving the company of its property, with- 
 out due process of law. It is confiscation. If it is claimed 
 that the public interests demand this action on the part of 
 the State, then, I submit, it is taking the property for pub- 
 lic use, and that just compensation must be made. The 
 present company has succeeded to all the rights granted to 
 the original companies by operation of law, and is entitled 
 to exercise them. The sad spectacle is now presented of 
 this great State attempting to violate its plighted faith and 
 repudiate its solemn agreement, after the roads have been 
 built and the money of the stockholders expended, after the 
 improvement has been made, and the State has received all 
 the benefits expected. I cannot believe that the people of 
 this State desire to be placed in any such position, and am 
 satisfied that the action of the legislature in enacting this 
 law will be repudiated by them as soon as its real charac- 
 ter is understood. That it has effectually destroyed all fu- 
 ture railroad enterprises, no one who is acquainted with its 
 effect in money centres will for a moment doubt. That, 
 however, I do not care to discuss at this time, as the State 
 has an undoubted right to prevent a further extension of its 
 
104 THE RAILWAY PROBLEM. 
 
 railroad system if it chooses, although as a citizen I deeply 
 regret such short-sighted policy. But, as the representative 
 of the Chicago, Milwaukee and St. Paul Railway Company, 
 a part of whose system of road is in this State, and who 
 have expended over $25,000,000 in permanent improve- 
 ments therein, on the faith and credit of the charters 
 granted, all of which is directly and seriously affected hy the 
 law in question, and must be ultimately ruined and destroyed 
 if this policy is persisted in and successfully enforced, I 
 am compelled not only to protest against such unjust legis- 
 lation and violation of plighted faith, but also to inform you, 
 and through you, the people of the State, what its effect, if 
 submitted to, will be, not only upon the company that I 
 represent, but upon the whole railroad system of the State, 
 and the business interests of the whole community. The 
 entire road of the Chicago, Milwaukee and St. Paul Bail- 
 way Company, as now constructed and equipped, has cost 
 about $36,000 per mile. The portion in Wisconsin, includ- 
 ing all our valuable grounds and improvements at Mil- 
 waukee and other points, cost about $38,000 per mile. It 
 is capitalized at those sums respectively in bonds and 
 stock. The stock has never been watered, and it is be- 
 lieved that the road could not be produced in its present 
 condition for a sum less than its cost or present capitaliza- 
 tion at this time. All agree that the company is entitled to 
 a fair remuneration on the capital invested. The railroads 
 already constructed have added many millions to the wealth 
 of the State, and perhaps no other class has derived so great 
 a benefit as the farmer. Many of the farmers and much of 
 the farming land of Wisconsin, now worth from $50 to $100 
 per acre, without the railroads would not be worth to ex- 
 ceed $10 or $20. Other branches of business and other in- 
 dustries of the State have experienced a similar benefit from 
 the construction and operation of these roads ; yet, every 
 one familiar with railroading in Wisconsin is aware that no 
 dividends were paid for the first twelve or fifteen years that 
 the roads were in operation, and that they were unable to 
 
STRUGGLE OF THE MANAGERS. 105 
 
 pay the interest on their bonds, and nearly all passed 
 through the process of foreclosure. It is only within the 
 last ten years that any dividends have been paid on the 
 stock of any of the roads. The bonded debt of the com- 
 panies, generally, bears only seven ' per cent interest, and 
 amounts to but little more than half the actual cost of the 
 roads with their equipments. During the last ten years this 
 interest has been paid, and represents aii income of seven 
 per cent on a trifle over one half of the cost of the property. 
 Since the organization of the Chicago, Milwaukee and St. 
 Paul Eailway Company, in May, 1863, there has been paid 
 in cash dividends on its stock, which represents nearly one 
 half of the actual cost of the property, $3,813,257.72, 
 which amounts to twenty-four per cent only for the whole 
 time, ten and a half years, and is equivalent to a dividend 
 of only two and twenty-eight hundredths per cent per an- 
 num on the stock of the company. All the balance of the 
 earnings over and above these dividends and payment of 
 the interest on the bonded debt, has been consumed in op- 
 erating expenses and improvements of the road and roll- 
 ing stock and bringing the property to its present state and 
 condition, and was necessary for that purpose. We have, 
 then, as the result of the last ten and a half years' existence 
 of the Chicago, Milwaukee and St. Paul Kailway Company, 
 one half the cost of the road capitalized in bonds, which has 
 received seven per cent per annum ; the other half capital- 
 ized in stock, preferred and common, which has received 
 two and twenty-eight hundredths per cent per annum in 
 cash ; and taking stock and bonds together, the actual re- 
 turn to the investors has been four and sixty-four hun- 
 dredths per cent per annum on the actual cost of the prop- 
 erty from May, 1863, to January 1874. In addition to 
 this amount, a small amount in stock has been distributed 
 in dividends to represent that portion of the net earnings 
 used in completing the construction of and improving the 
 property. These stock dividends amount to two and eight 
 tenths per cent per annum. With these stock dividends 
 
106 
 
 THE RAILWAY PROBLEM. 
 
 added to the cash dividends above named, at their nominal 
 value, the whole amount received on the investment, for 
 interest and cash and stock dividends, amounts to only six 
 per cent per annum of the actual cost of the property. I 
 submit to your Excellency, and through you to the people of 
 the State, whether this is more than a fair and reasonable 
 return for the capital invested in these improvements. Is 
 it not far below such reasonable amount ? The best and 
 most careful economists admit that not less than ten per 
 cent per annum should be allowed on such investments. 
 Yet less than one half that amount has been received in 
 cash by this company, and the legislature now attempts to 
 assume the regulation of our income," and reduce it to a 
 point barely above operating expenses. The company is 
 now engaged in relaying its road with steel rails, and, when 
 that and other improvements shall have been completed, it 
 is hoped that moderate and reasonable dividends may be 
 made on the actual cost of the road, and that our increased 
 facilities may enable us to reduce the rates charged for pas- 
 sengers and freight. The directors of this company have 
 at all times had a due regard to the interests of tiie public, 
 and a desire to furnish transportation at the lowest possible 
 fig^ures, and although not receiving a fair and reasonable re- 
 turn on their investments, they have for the last four years 
 prior to 1873 steadily reduced their rates of freight and 
 passengers from year to year, as will be seen from the fol- 
 lowing tables, showing the charge for freight per mile, and 
 average per mile for passengers for each year from 1868 to 
 1873 inclusive : — 
 
 
 Charges per ton 
 
 Average rate 
 
 
 per mile. 
 
 per mile. 
 
 1864 
 
 ..... 
 
 .04 
 
 1868 
 
 .03 40-100 
 
 .03 86-100 
 
 1869 
 
 .03 10-100 
 
 .03 92-100 
 
 1870 
 
 .02 82-100 
 
 .03 85-100 
 
 1871 
 
 .02 54H00 
 
 .03 75-100 
 
 1872 
 
 .02 43-100 
 
 .03 54-100 
 
 1873 
 
 .02 60-100 
 
 .03 42-100 
 
STRUGGLE OF THE MANAGERS. 107 
 
 The law in question proposes to reduce our passenger 
 rates twenty-five per cent and our freight rates ahout the 
 same, thus deducting from our present tariff about twenty- 
 five per cent of our gross earnings. The same legislature 
 also imposed upon us an additional tax of one per cent of 
 our gross earnings, which is equivalent to taking three per 
 cent of our net earnings. 
 
 It is not pretended that we are now running too many 
 trains or at too great a rate of speed to accommodate the 
 public, or that any less attention and expense can be be- 
 stowed upon our road-bed and track and rolling stock, con- 
 sistent with the safe operation of our road. Hence it is im- 
 possible for us to decrease the expense of operation and re- 
 pair, and those expenses must remain as before the passage 
 of the law, provided we continue to operate the road as a 
 first-class road and so as to accommodate the public. The 
 entire reduction in our rates made by this act is therefore a 
 reduction from our net earnings. The average expenses of 
 operation are not less than two thirds of our entire gross 
 earnings, leaving as net about one third. 
 
 This act, as we have seen, pfoposes to take from us twenty- 
 five per cent of our passenger and freight earnings, and the 
 additional tax of one per cent of our gross earnings, all of 
 which is equivalent to taking from us twenty-six per cent 
 of our gross earnings. Therefore, deducting this amount, 
 equal to twenty-sis per cent of our entire gross earnings, 
 from thirty-three per cent, our average net earnings on 
 business, would leave us only seven per cent of our gross 
 earnings as the entire net earnings of the road, out of which 
 must be paid the interest on our bonds and the dividends to 
 our stockholders. It is therefore manifest that this law will 
 take from us over three fourths of the net income received 
 under our present tariff, and yet the total net income of last 
 year was not suificient to pay six per cent on the actual loss 
 of the property. Comment is unnecessary upon a law which 
 proposes thus to deprive capital permanently invested under 
 the sacred promise and pledge of a great State of a suitable 
 and reasonable return. 
 
108 THE RAILWAY PROBLEM. 
 
 Can it be that such a law, and passed under such circum- 
 stances, is constitutional and binding ? Can the sacred obli- 
 gation of the State to us be thus impaired ? And can our 
 property, invested on the faith and credit of the State, 
 pledged in our charter, be thus confiscated ? I do not be- 
 lieve it, and shall not until compelled to do so by the deci- 
 sion of the highest court authorized to pass upon it. 
 
 The board of directors have caused this act to be care- 
 fully examined and considered by our own counsel, and by 
 some of the most eminent jurists in the land, and after such 
 examination they are /unanimous in their opinion that it is 
 unconstitutional and void. 
 
 The board of directors are trustees of this property and 
 are bound faithfully to discharge their trust, and to the best 
 of their ability to protect it from spoliation and ruin. They 
 have sought the advice of able counsel, and after mature 
 consideration believe it their duty to disregard so much of 
 said law as attempts arbitrarily to fix rates of compensation 
 for freight and passengers. 
 
 I regret the necessity that compels the company to take 
 this course, but it is the only one left to preserve the prop- 
 erty and properly test the question raised by the act. An 
 unconstitutional act is void. A law that contravenes the 
 constitution is of no effect. It is no law. The decision of 
 the court only ascertains and declares that it is void. It is 
 none the less unconstitutional and void before it is so de- 
 clared than it is afterwards. Hence such a law has no more 
 binding force before than after the decision of the court. 
 It is no justification for any act done or omitted at any time. 
 The only difference is, that parties obeying or disregarding 
 it before the court decides upon it are, in either case, acting 
 at their peril. Should we obey this law, and by so doing 
 allow the property committed to our trust to suffer waste, 
 the law would be no legal justification of our conduct should 
 it afterwards be adjudged unconstitutional, and so, if we 
 disobey it our act will be justified or not, according as the 
 court may finally determine. Being placed, therefore, in a 
 
STRUGGLE OF THE MANAGERS. 109 
 
 position where we are compelled to act, we are determined 
 to act in accordance with the advice of our counsel, as we are 
 fully satisfied that it is only by so doing that we can protect 
 and guard the important interests committed to our charge. 
 It is from no disrespect to Your Excellency, or the consti- 
 tuted authorities of the State, that the board of directors 
 have determined upon this course. They are fully aware 
 that they are not able to contend with the State, or defy its 
 laws, and were it not for the fact that they are fully con- 
 vinced of the unconstitutionality of this act, would not adopt 
 a course of action which would seem even to contravene a 
 law of the State. 
 
 But, being fully conscious that the enforcement of this law 
 will ruin the property of the company, and feeling assured 
 of the correctness of the opinions of the eminent counsel 
 who have examined the question, the directors feel com- 
 pelled to disregard the provisions of the law so far as it fixes 
 a tariff of rates for the company, until the courts have finally 
 passed upon the question of its validity. 
 Respectfully yours, etc. 
 
 AiEXANDEK Mitchell, President. 
 
 It will be noticed that Mr. Mitchell's strong point 
 is that the statutory rates, if enforced, would deprive 
 his company of net earnings, which would be equiva- 
 lent to confiscation of the property. Judge Curtis 
 premised his opinion by saying : — 
 
 Certain material facts are stated as proper to be taken 
 into consideration. 
 
 The first is, that the railway corporation was formed by 
 consolidation, etc. The next material yhsci stated is, that if 
 the corporation transacted its business for the rates of com- 
 pensation provided in the law in question, its entire receipts 
 will be exhausted by its necessary expenditures, leaving 
 nothing to be divided among its stockholders or appropri- 
 ated to the payment of the interest and principal of its out- 
 standing bonds. 
 
110 THE RAILWAY PROBLEM. 
 
 The other view of the law was that the last men- 
 tioned " material fact stated " was not proven. In- 
 deed, there seems to be in the statement contained 
 in Mr. Mitchell's letter, when taken in connection 
 with other well known facts, strong evidence that the 
 statements of fact, as made to Judge Curtis, were not 
 in all respects correct. 
 
 For example, Mr. Mitchell states the average rate 
 per mile in 1873 for passengers at 3 42-100 cents. 
 It was well understood that this was an average rate 
 received from those passengers who paid anything, 
 and that had the average rate been obtained by using 
 as a divisor the total number of paying passengers 
 plus the number of those who rode free, the average 
 would have been much below three cents, the price 
 fixed by the law; and consequently, if the company 
 would collect the legal rate from all alike, and abolish 
 the free list, its revenues from the passenger business 
 would be increased rather than decreased. 
 
 If the same test is applied to the freight rates, it 
 becomes equally evident that this statute did not re- 
 duce the rates in Wisconsin below the average rate 
 of 2 50-100 cents per ton per mile, which according 
 to Mr. Mitchell's statement was the average for the 
 year 1873. For proof, it may be stated that the law 
 classified freight into four general classes to be desig- 
 nated as first, second, third, and fourth classes, and 
 into seven special classes to be designated as classes 
 D, E, F, G, H, I, and J. The rates on the four gen- 
 eral classes were made the same as were "charged for 
 carrying freights in said four general classes on said 
 railroads on the first day of June, 1873," and the rate 
 per ton per mile of the seven special classes was 
 fixed at certain rates for the first twenty-five miles, 
 
STRUGGLE OF THE MANAGERS. 
 
 Ill 
 
 a less for the second twenty-five miles, and a fixed 
 rate per mile after, as follows : 
 
 
 1st 25 miles. 
 
 2d 25 miles. 
 
 AU 
 
 over 50 miles 
 
 D 
 
 4f cts. . 
 
 ^ cts. 
 
 
 Ifcts. 
 
 E 
 
 Same as 
 
 class above. 
 
 
 
 F 
 
 4 
 
 2 
 
 
 
 G 
 
 ■ ^ ■ 
 
 2 
 
 
 
 H 
 
 4 
 
 • ^ 
 
 
 • 1| 
 
 I 
 
 • 4f . 
 
 ■ 2| 
 
 
 • H 
 
 J 
 
 in iL. 
 
 ■ 3i . 
 ;_ "J 
 
 • 2| 
 
 -1 i__ 
 
 
 • J T J 1 
 
 When it is considered, in connection with these 
 figures, that the four general classes were left by the 
 legislature under the same tariffs as had been in force 
 by the companies, and that as a rule first class is three 
 times the rate of class D, and second class about two 
 and one half times class D, and third and fourth class 
 materially higher, the evidence seems conclusive that 
 the rates fixed by law would produce an average ma- 
 terially higher than the average of the whole line, 
 stated by Mr. Mitchell at two and one half cents. It 
 seems also probable that had the rates fixed by this 
 law been applied to the whole business of the line, the 
 interstate as well as the State traffic, it would still 
 have produced a larger average. The latter of course 
 is the proper test. There are little inaccuracies in the 
 material facts as stated by Mr. Mitchell, which were 
 pointed out at once. For example : in his tabulated 
 statement of passenger earnings per mile, averaging 
 the gross earnings from transportation of passengers 
 who paid any fare, and omitting the large number 
 who went free, the rate is stated at 3 42-100 cents 
 per mile ; then he says : " The law in question pro- 
 poses to reduce our passenger rate twenty-five per 
 cent," which would have reduced the rate to 2 67- 
 
112 THE RAILWAY PROBLEM. 
 
 100 cents per mile, while 'the rate fixed by the law 
 complained of was three cents per mile. Then Mr. 
 Mitchell proceeds : "And our freight rates about the 
 same; thus deducting from our present tariff about 
 twenty-five per cent of our gross earnings." It was 
 immediately pointed out that the law only applied to 
 strictly State business, that> is, to traffic that origi- 
 nated and ended in the State of Wisconsin. All 
 other traffic was interstate commerce, and not con- 
 trollable by State legislation. The volume of busi- 
 ness which would be affected by the law would there- 
 fore be comparatively small, — estimated at not over 
 ten per cent of the total traffic of the line. Hence, 
 if the rates fixed by the law were twenty-five per cent 
 less than the rates the company had been in the habit 
 of collecting (which was denied), it could not possibly 
 have " deducted from its present tariff " more than 
 two and one half per cent, instead of twenty-five per 
 cent as stated by Mr. Mitchell. 
 
 It was claimed that the facts were that the Chi- 
 cago, Milwaukee, and St. Paul Company, in its efforts 
 to bankrupt the Lake Superior and Mississippi Com- 
 pany, had many of its interstate rates so low that it 
 had resulted in loss, and that its other rates had been 
 made unreasonably high in order to recoup this loss, 
 and that the State of Wisconsin was compelled to 
 pay a part of the expense of the transportation of 
 favored sections of the State of Minnesota. 
 
 All through the Granger contests, the railways 
 have weakened the force of their arguments by their 
 misrepresentation of facts and by their extravagant 
 predictions of ruin. 
 
 The companies were continually proclaiming, " If 
 this or that is done, it will ruin us ; it will ruin the 
 
STRUGGLE OF THE MANAGERS. 113 
 
 State." In the light of subsequent events, how ab- 
 surd appear the following extracts from Mr. Mitch- 
 ell's letter already quoted : " That it (the law) has ef- 
 fectually destroyed all future railroad enterprises, no 
 one who is acquainted with its effect in money cen- 
 tres will for a moment doubt. That, however, I do 
 not care to discuss at this time, as the State has an 
 undoubted right to prevent a further extension of its 
 railroad system if it chooses, although, as a citizen 
 of the State, I deeply regret such short-sighted pol- 
 icy." 
 
CHAPTER XII. 
 
 FUNDAMENTAL PKINCIIPLES. 
 
 It is perhaps natural, at any rate it is common, for 
 those possessing superior education or superior wealth 
 to regard with a feeling akin to contempt the opin- 
 ions of the majority of the people upon social and es- 
 pecially upon economic questions. But history proves 
 that in the long run the opinions of the majority are 
 more apt to be correct than the opinions of the few. 
 The great majority have less self-interest, and are 
 therefore in a better position to exercise an unbiased 
 judgment. They perhaps know little of precedents, 
 but the principles of justice and fairness as between 
 man and man are implanted in their natures, and 
 when a new question is presented they are more apt 
 to weigh it in the scales of the broad principles of 
 equity than in those of precedent or existing formulas. 
 So when the questions under discussion arose, the law- 
 yer resorted to the books for precedents, the scholar 
 to his formula of words, the capitalist to his self-in- 
 terest ; but the great majority of the people simply 
 inquired what was right and fair. They reasoned 
 thus : the railway companies have a monopoly of the 
 transportation business, and all of the people are 
 of necessity compelled to purchase transportation in 
 one way and another. Therefore it is not fair or 
 just that the companies should have the exclusive right 
 to fix the rates ; and, on the other hand, it is not fair 
 
FUNDAMENTAL PRINCIPLES. 115 
 
 that each individual should have the right to com- 
 mand transportation at his own price. Consequently, 
 justice and fairness require that these rates shall be 
 made by a disinterested party, and the most disinter- 
 ested party is the State. By this process of reason- 
 ing the people arrived at their conclusion as to the 
 justice and fairness of the principles which the com- 
 mon law had established in relation to common car- 
 riers. For, under the common law, an agreement 
 made between the carrier and the shipper which gave 
 the carrier more than a reasonable rate was not bind- 
 ing. Even after the shipper had paid the considera- 
 tion under such an agreement, he could demand to 
 have the question as to whether he had paid more 
 than a reasonable rate referred to the State (the 
 courts) as an arbiter, and in case the arbiter found 
 that he had paid too much, an execution would be 
 issued in his favor to recover the excess. 
 
 But if the common-law remedy was so perfect, why 
 enact new laws ? In principle it was admitted that 
 the common law was complete, but its enforcement 
 under modern conditions was impracticable. The 
 courts deal only with the past. The shipper must 
 first pay his money, and then resort to an expensive 
 suit to recover it ; and as the majority of shipments 
 were inconsiderable in amount, the remedy was too 
 expensive to be made available. So public opinion 
 said, " Let the State, through the legislature, estab- 
 lish in advance fair rates; but let them be fair, and 
 if they are claimed to be too low to be reasonably 
 compensatory, let the State, through its courts, on 
 application of the companies, investigate, and if the 
 claim is well founded the courts will disregard them. 
 In justice such rates ought to be set aside." 
 
116 THE RAILWAY PROBLEM. 
 
 Thus at an eaiiy stage the people came to the con- 
 clusion that the rule of law should be, that the legis- 
 lature has power to fix, not arbitrary rates regard- 
 less of equity, but only reasonable rates ; and if they 
 erred in this respect, the courts could set them right. 
 
 The vacillating position of the companies upon 
 this point is sufficiently apparent from the uncertain 
 tone of Mr. Mitchell's letter. They seemed to claim 
 that under the provisions of their charters they could 
 make any rates that pleased their board of directors, 
 whether reasonable or unreasonable ; and at the same 
 time seemed to admit that they were doubtful on that 
 point by making a strong statement to show that the 
 law was invalid, because the rates fixed by law were 
 unreasonably low. 
 
 Much to the surprise of the people as well as the 
 companies, when the question came before the Su- 
 preme Court of the United States in October, 1876, 
 the majority of the court. Justices Field and Strong 
 dissenting, took the extreme view that the legislature 
 had authority to arbitrarily fix rates which were 
 valid and binding, even though they were so low as 
 to deprive the companies of all net revenue. In the 
 decision, referring to the power of the legislature 
 to make rates, the chief justice, speaking for the 
 majority of the judges, used the following startling 
 language : — '■ 
 
 We know that this is a power which may be abused, but 
 that is no argument against its existence. For protection 
 against abuses by legislatures, the people must resort to the 
 polls, not to the courts. 
 
 At the October term, 1890, just fourteen years 
 after the first decision, the question was again brought 
 
FUNDAMENTAL PRINCIPLES. 117 
 
 before the court in cases from Minnesota. The court 
 reafiBirmed the right of the legislatures to establish 
 rates, limited, however, to such rates being reason- 
 able in the sense that they should be fairly remu- 
 nerative to the companies. This opinion seemed to be 
 regarded as highly satisfactory to the companies, and 
 to that element which may be called the Wall Street 
 contingent. To the majority of the people in the 
 Western States it was also satisfactory, as it was the 
 conclusion at which they had arrived nearly twenty 
 years in advance of the court. 
 
 Three of the justices dissented from this opinion, 
 Mr. Justice Bradley writing the dissenting opinion, 
 in which Mr. Justice Gray and Mr. Justice Lamar 
 agreed. This opinion was a very logical argument in 
 support of the former ruling of the court. Mr. Jus- 
 tice Miller concurred with the majority, and in so do- 
 ing made a concise statement of the law as it now 
 stands. He said : — 
 
 I concur with some hesitation in the judgment of the 
 court, but wish to make a few suggestions of the principles 
 which I think should govern this class of questions in the 
 courts. Not desiring to make a dissent, nor a prolonged 
 argument in favor of any views I may have, I will state 
 them in the form of propositions. 
 
 1. In regard to the business of common carriers limited 
 to points within a single State, that State has the legislative 
 power to estabhsh the rates of compensation for such car- 
 riage. 
 
 2. The power which the legislature has to do this can be 
 exercised through a commission, which it may authorize to 
 act in the matter, such as the one appointed by the legislar 
 ture of Minnesota by the act now under consideration. 
 
 3. Neither the legislature, nor such commission acting 
 under the authority of the legislature, can establish arbitra- 
 
118 THE RAILWAY PROBLEM. 
 
 rily and without regard to justice and right a tarifE of rates 
 for such transportation, which is so unreasonable as to prac- 
 tically destroy the value of the property of persons engaged 
 in the carrying business on the one hand, nor so exorbitant 
 and extravagant as to be in utter disregard of the rights of 
 the public for the use of such transportation on the other. 
 
 4. In either of these classes of caties there is an ultimate 
 remedy for the parties aggrieved, in the courts, for relief 
 against such oppressive legislation, and especially in the 
 courts of the United States, where the tariff of rates estab- 
 lished either by the legislature or by the commission is such 
 as to deprive a party of his property without due process of 
 law. 
 
 5. But until the judiciary has been appealed to, to de- 
 clare the regulations made, whether by the legislature or by 
 the commission, voidable for the reasons mentioned, the 
 tarifE of rates so fixed is the law of the land, and must be 
 submitted to both by the carrier and the parties with whom 
 he deals. 
 
 6. That the proper, if not the only, mode of judicial re- 
 lief against the tarifE of rates established by the legislature 
 or by its commission, is by a bill in chancery asserting its 
 unreasonable character and its conflict with the constitution 
 of the United States, and asking a decree of court forbid- 
 ding the corporation from exacting such fare as excessive 
 or establishing its right to collect the rates as being within 
 the limits of a just compensation for the service rendered. 
 
 7. That until this is done it is not competent for each in- 
 dividual having dealings with the carrying corporation, or 
 for the corporation with regard to each individual who de- 
 mands its services, to raise a contest in the courts over the 
 questions which ought to be settled in this general and con- 
 clusive method. 
 
 8. But in the present case, where an application is made 
 to the Supreme Court of the State to compel the common 
 carriers, namely, the railroad companies, to perform the ser- 
 vices which their duty requires them to do for the general 
 
FUNDAMENTAL PRINCIPLES. 119 
 
 public, which is equivalent to establishing by judicial pro- 
 ceeding the reasonableness of the charges fixed by the com- 
 mission, I think the court has the same right and duty to 
 enquire into the reasonableness of the tariff of rates estab- 
 lished by the commission before granting such relief, that 
 it would have* if called upon so to do by a bill in chancery. 
 
 9. I do not agree that it was necessary to the validity of 
 the action of the commission that previous notice should 
 have been given to all common carriers interested in the 
 rates to be established, or to any particular one of them, 
 any more than it would have been necessery, which I think 
 it is not, for the legislature to have given such notice if it 
 had established such rates by legislative enactment. 
 
 10. But when the question becomes a judicial one, and 
 the validity and justice of these rates are to be established 
 or rejected by the judgment of the court, it is necessary 
 that the railroad corporations interested in the fare to be 
 considered should have notice, and have a right to be heard 
 on the question relating to such fare, which I have pointed 
 out as judicial questions. For the refusal of the Supreme 
 Court of Minnesota to receive evidence on this subject, I 
 think the case ought to be reversed, on the ground that this 
 denial of due process of law is a proceeding which takes 
 the property of the company, and if this be a just construc- 
 tion of the statute of Minnesota it is for that reason void. 
 
 The question of legislative regulation of railway 
 rates has now been under discussion for almost a 
 quarter of a century. During this time it has been 
 submitted for adjudication to the Supreme Courts of 
 nearly all the States, and to the Supreme Court of 
 the United States. In the trials before the courts, 
 the ablest counsel has been employed on behalf of 
 the companies, and their resources of argument and 
 precedents and analogies have been exhausted. While 
 the courts have not always been unanimous in the 
 
120 THE RAILWAY PROBLEM. 
 
 decisions which have been rendered, or in the meth- 
 ods of reasoning by which their conclusions have been 
 reached, or as to the nature and extent of legislative 
 authority, yet upon the question as to whether the 
 legislature has authority to fix rates there has been 
 no disagreement. 
 
 In the first cases before the Supreme Court of the 
 United States, in 1876, the majority of the court held 
 that rates thus fixed were conclusive, and not subject 
 to review by any court. In the last cases, in 1890, 
 Mr. Justice Bradley wrote a very strong opinion 
 maintaining the principles of the previous decision, 
 which was concurred in by two other justices (Gray 
 and Lamar). But the majority of the court over- 
 ruled this view of the law, to the extent only that 
 the courts might inquire as to whether legislative 
 rates were so unreasonably low as to amount to con- 
 fiscation of property. 
 
 Under these circumstances it is submitted that it 
 is about time that railway management should begin 
 to recognize, in making tariffs, the principle of these 
 laws. They should submit to the authority of law ; 
 they should construct and administer their schedules 
 of rates according to the spirit and the letter of the 
 laws. And instead of attributing to these laws aU 
 the misfortunes which befall their management, they 
 should become more frank and honest in their state- 
 ments to their stockholders and the public. 
 
 Whenever a political issue supposed to have been 
 settled by the civil war is made use of in modern pol- 
 itics, it is styled in derision the " bloody shirt." 
 Since the close of the war, whenever the party gen- 
 erally dominant has blundered, or whenever meas- 
 ures have been inaugurated which were liable to 
 
FUNDAMENTAL PRINCIPLES. 121 
 
 bring that party into disrepute, the " bloody shirt " 
 has been brought out to claim the attention of the 
 public and conceal the errors of the party. The 
 "Granger laws" have served the purpose of a "bloody 
 shirt " to conceal incompetence in railway manage- 
 ment for twenty years at least. 
 
CHAPTER XIII. 
 
 THE SENATE COMMITTEE. 
 
 The State laws which have been considered af- 
 fected only State traffic, which is understood to mean 
 traffic that begins and ends in the same State. Much 
 the larger part of the shipments by railways, both of 
 persons and property, passes from one State into or 
 through one or more other States, and is therefore 
 termed interstate traffic or commerce, the regulation 
 of which, under the Constitution of the United 
 States, is the exclusive prerogative of Congress. The 
 subject of regulating the management of railways in 
 respect to interstate commerce had been more or less 
 discussed in Congress, when in March, 1885, a reso- 
 lution was adopted by the Senate reading as follows : 
 
 Resolved, That a select committee of five Senators be ap- 
 pointed, to investigate and report upon the subject of the 
 regulation of the transportation, by raUroads and water 
 routes in connection or in competition with said railroads, of 
 freights and passengers between the several States, with au- 
 thority to sit during the recess of Congress, and with power 
 to summon witnesses and to do whatever is necessary for a . 
 full examination of the subject, and report to the Senate on 
 or before the second Monday of December next. Said com- 
 mittee shall have power to appoint a clerk and stenographer, 
 and the expense of such investigation shall be paid from the 
 appropriation for expenses of inquiries and investigations 
 ordered by the Senate. 
 
THE SENATE COMMITTEE. 123 
 
 The committee was appointed March 21, 1885, con- 
 sisting of Senators CuUom of Illinois, chairman, 
 Miller of New York, Piatt of Connecticut, Gorman 
 of Maryland, and Harris of Tennessee. 
 
 The committee submitted their report January 
 18, 1886, the intervening time being principally oc- 
 cupied in collecting facts and opinions bearing upon 
 the subject from all classes of people and all sections 
 of the country. They commenced taking testimony 
 in New York in May, 1885 ; and in their endeavor to 
 ascertain what causes of complaint existed against 
 the railways, and the opinions of the people as to 
 what remedies could be applied by Congress, they 
 visited most of the leading commercial centres and 
 took testimony. Public notice was given of these 
 hearings, and eilorts were made to secure the attend- 
 ance of those most competent to speak as the repre- 
 sentatives of every interest and every shade of opin- 
 ion. 
 
 The testimony taken, as well as the statements 
 received in response to correspondence, was printed 
 in a volume of more than 1,450 pages, and may fairly 
 be claimed to represent the best thought of the Amer- 
 ican people, at that time, upon the questions involved 
 in the regulation of commerce among the States. 
 Upon this point their report says : — 
 
 These statements are a very valuable contribution to the 
 literature of this subject, and give the strongest evidence of 
 its position in the public mind as one of the most important 
 and controlling questions now before the country. The in- 
 terest everywhere manifested in its investigations has con- 
 vinced the committee that no general question of govern- 
 mental policy occupies at this time so prominent a place in 
 the thoughts of the people as that of controlling the steady 
 
124 THE RAILWAY PROBLEM. 
 
 growth and extending influence of corporate power, and of 
 regulating its relations to the public; and as no corpora- 
 tions are more conspicuously before the public eye, and as 
 there are none whose operations so directly affect every 
 citizen in the daily pursuit of his business or avocation as 
 the corporations engaged in transportation, they naturally 
 receive the most consideration in this connection. 
 
 This -testimony contains the most convincing evi- 
 dence of the truth of the vrriter's often repeated as- 
 sertion that the cause of complaint against the rail- 
 ways has been, not the exorbitant rates, but the 
 practice of discriminations, and that the prime ob- 
 ject of the laws which have been enacted has been to 
 prevent discriminations without doing injustice to 
 the companies by fixing too low rates. 
 
 This view of the drift of the evidence evidently 
 made a profound impression upon the minds of the 
 committee, as the following extracts from their very 
 exhaustive report prove. Speaking of the policy 
 which had been pursued of allowing the companies 
 to build and operate railways unrestricted by law, 
 on page 7 of their report they say : — 
 
 The policy which has been pursued has given us the most 
 efficient railway service and the lowest rates known in the 
 world ; but its recognized benefits have been attained at the 
 cost of the most unwarranted discriminations, and its effect 
 has been to buUd up the strong at the expense of the weak, 
 to give the large dealer an advantage over the small trader, 
 to make capital count for more than individual credit and 
 enterprise, to concentrate business at great commercial cen- 
 tres, to necessitate combinations and aggregations of capital, 
 to foster monopoly, to encourage the growth and extend the 
 influence of corporate power, and to throw the control of 
 the commerce of the country more and more into the hands 
 of the few. 
 
THE SENATE COMMITTEE. 125 
 
 These results are so familiar as everyday facts that they 
 scarcely attract our attention. The wonderful transforma- 
 tion in all economical conditions to be attributed to the use 
 of the railroad is not yet at an end, and the questions pre- 
 sented as the result of these changes demand the most ear- 
 nest investigation and the most thoughtful consideration. 
 
 On page 40 : — 
 
 Unjust discrimination is the chief cause of complaint 
 against the management of railroads in the conduct of busi- 
 ness, and gives rise to much of the pressure upon Congress 
 for regulative legislation. The railroad companies do not 
 recognize as they should the fact that they sustain a difiEer- 
 ent relation to the public from persons engaged in ordinary 
 business enterprises. Railroad companies are not disposed 
 to regard themselves " as holding a public ofiSce and bound 
 to the public," as expressed in the ancient law. They do 
 not deal with all citizens alike. They discriminate between 
 persons and between places, and the States and Congress 
 are consequently called on to in some way enforce the plain 
 principles of the common law for the protection of the peo- 
 ple against the unlawful conduct of common carriers in 
 carrying on the commerce of the country. 
 
 In summing up the testimony, on pages 180-182, 
 the committee say : — 
 
 The complaints against the raUroad systems of the United 
 States expressed to the committee are based upon the fol- 
 lowing charges : — 
 
 1. That local rates are unreasonably high, compared with 
 through rates. 
 
 2. That both local and through rates are unreasonably 
 high at non-competing points, either from absence of com- 
 petition or in consequence of pooling agreements that re- 
 strict its operation. 
 
 3. That rates are established without apparent regard to 
 
126 THE RAILWAY PROBLEM. 
 
 the actual cost of the service performed, and are based 
 largely on what the traffic wiU bear. 
 
 4. That unjustifiable discriminations are constantly made 
 between individuals in the rates charged for like service 
 under similar circumstances. 
 
 5. That improper discriminations are made between arti- 
 cles 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 efBect of the prevailing policy of railroad 
 management is, by an elaborate system of secret special 
 rates, rebates, drawbacks, and concessions, to foster mo- 
 nopoly, to enrich favored shippers, and to prevent free com- 
 petition in many lines of trade in which the item of trans- 
 portation is an important factor. 
 
 8. That such favoritism and secrecy introduce an ele- 
 ment of uncertainty into legitimate business that greatly 
 retards the developments of our industries and commerce. 
 
 9. That the secret cutting of rates and the sudden fluctua- 
 tions that constantly take place are demoralizing to all busi- 
 ness except that of a purely speculative character, and fre- 
 quently occasion great injustice and heavy losses. 
 
 10. That in the absence of national and uniform legisla- 
 tion, the railroads are able by various devices to avoid their 
 responsibility as carriers, especially on shipments over more 
 than one road, or from one State to another, and that ship- 
 pers 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 con- 
 tracts, 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 respon- 
 sible for the acts of dishonest agents acting under their au- 
 thority. 
 
 13. That the common law fails to afEord a remedy for 
 
THE SENATE COMMITTEE. 127 
 
 such grievances, and that in case of dispute the shipper is 
 compelled to submit to the decision of the railroad manager 
 or pool commissioner, or run the risk of incurring further 
 losses by greater discriminations. 
 
 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 construc- 
 tion 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 railroad corporations have improperly engaged 
 in lines of business entirely distinct from that of transporta- 
 tion, and that undue advantages have been afforded to busi- 
 ness enterprises in which railroad officials are interested. 
 
 18. That the management of the raiboad business is ex- 
 travagant 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. 
 
 It wiU be observed that the most important, and in fact 
 nearly all, of the foregoing complaints are based upon the 
 practice of discrimination in one form or another. This is 
 the principal cause of complaint against the management 
 and operation of the transportation system of the United 
 States, and gives rise to the questions of greatest difficulty 
 in the regulation of interstate commerce. 
 
 It is substantially agreed by all parties in interest that 
 the great desideratum is to secure equality, so far as prac- 
 ticable, in the facilities for transportation afforded and the 
 
128 THE RAILWAY PROBLEM. 
 
 rates charged by the instrumentalities of commerce. The 
 burden of complaint is against unfair differences in these 
 particulars as between different places, persons, and com- 
 modities, and its essence is that these difiEerences are unjust 
 in comparison with the rates allowed or facilities afforded 
 to other persons and places for a like service under similar 
 circumstances. 
 
 On page 188, the following example is given : — 
 
 One reference to the testimony must suffice to illustrate 
 the universality of individual favoritism, the reasons which 
 influence the railroads in favoring one shipper to the ruin 
 of another, and the injustice of the system. Mr. G. M. 
 Wicker of Chicago, a former railroad official of many years' 
 experience, was asked if he knew anything of discrimina- 
 tion upon the part of transportation companies as between 
 individuals or localities, and testified as follows : — 
 
 Mr. 'Wicker. Yes ; I do. And this discrimination, by 
 reason of rebates, is a part of the present railroad system. I 
 do not believe the present railway system could be con- 
 ducted without it. Roads coming into this field to-day and 
 undertaking to do business on a legitimate basis of billing 
 the property at the agreed rates would simply result in get- 
 ting no business in a short time. 
 
 Senator Harris. Then, regardless of the popularly un- 
 derstood schedule rates, practically it is a matter of under- 
 bidding for business by way of rebates. 
 
 Mr. Wicker. Yes, sir ; worse than that. It is individ- 
 ual favoritism, the building up of one party to the detri- 
 ment of the other. I will illustrate. I have been do- 
 ing it myself for years and had to do it. 
 
 Senator Harris. Doing it for yourself in your posi- 
 tion? 
 
 Mr. Wicker. I am speaking now of when I was a rail- 
 road man. Here is quite a grain point in Iowa, where 
 there are five or six elevators. As a railroad man, I would 
 try and hold all these dealers on a " level keel " and give 
 
THE SENATE COMMITTEE. 129 
 
 them all the same tariff rate. But suppose there was a 
 road five, or six, or eight miles across the country, and 
 these dealers should begin to drop in on me every day or 
 two and tell me that that road across the country was reach- 
 ing within a mile or two of our station and drawing to it- 
 self all the grain. You might say that it would be the just 
 and right thing to do to give all the five or six dealers at 
 this station a special rate to meet that competition through 
 the country, But, as a railroad man, I can accomplish the 
 purpose better by picking out one good smart, live man, and, 
 giving him a concession of three or four cents a hundred, 
 let him go there and scoop the business. I would get the 
 tonnage, and that is what I want. But if I give it to the 
 five, it is known in a very short time. 
 
 When you take in these people at the station on a pri- 
 vate rebate you might as well make it public and lose what 
 you intend to accomplish. You can take hold of one man 
 and build him up at the expense of the others, and the rail- 
 road will get the tonnage. 
 
 Senator Harris. The effect is to build the one man up 
 and destroy the others. 
 
 Mr. Wicker. Yes, sir ; but it accomplishes the purposes 
 of the road better than to build up the six. 
 
 Senator Harris. And the road, in seeking its own self- 
 preservation, has resorted to that method of concentrating 
 the business into the hands of one or a few, to the destruc- 
 tion of the many. 
 
 Mr. Wicker, Yes, sir ; and that is a part and parcel of 
 the system. 
 
 Senator Harris. Is that system continued up to this 
 time? 
 
 Mr. Wicker. Yes, sir. 
 
 Senator Harris. That is the method by which trans- 
 portation is being conducted at this time by the railroads ? 
 
 Mr. Wicker. Very largely. Where they form a pool 
 and maintain that pool they do away with that method. 
 
130 THE RAILWAY PROBLEM. 
 
 So, I say, the pool is to the advantage of the public ; it puts 
 everybody on an even keel. 
 
 The Chairman. Provided it is lived up to by the rail- 
 road companies. 
 
 Mr. Wicker. Yes, sir. Then put a commission over 
 that pool to see that the rate is just and right, and I think 
 you have approached nearer to justice than by any other 
 way. 
 
 On page 189 the committee say : — 
 
 The practice prevails so generally that it has come to be 
 understood among business men that the published tariffs 
 are made for the smaller shippers and those unsophisticated 
 enough to pay the established rates ; that those who can 
 control the largest amounts of business will be allowed the 
 lowest rates ; that those who, even without this advantage, 
 can get on " the inside," through the friendship of the offi- 
 cials or by any other means, can at least secure valuable 
 concessions ; and that the most advantageous rates are to 
 be obtained only through personal influence or favoritism, 
 or by persistent " bulldozing." 
 
 It is in evidence that this state of afEairs is far from sat- 
 isfactory, even to those specially favored, who can never be 
 certain that their competitors do not, or at any time may 
 not, receive even better terms than themselves. Not a 
 few large shippers who admitted that they were receiving 
 favorable concessions testified that they would gladly sur- 
 render the special advantages they enjoyed if only the rates 
 could be public and alike to all. 
 
 Again on page 191 : — 
 
 Universal complaint has been made to the committee as 
 to the discriminations commonly practiced against places, 
 and as to the conspicuous discrepancies between what are 
 usually termed " local " rates and what are known as 
 "through" rates. 
 
CHAPTER XIV. 
 
 THE INTERSTATE COMMERCE ACT. 
 
 Based upon the report of Senator CuUom's com- 
 mittee, the law commonly known as the Interstate 
 Commerce Act was passed by Congress, and became 
 effective in April, 1887. 
 
 An examination of the provisions of this law con- 
 clusively proves that it is a law against unjust dis- 
 criminations. The committee which prepared it, on 
 presenting it to Congress, said : — 
 
 The provisions of the bill are based upon the theory that 
 the paramount evil chargeable against the operation of the 
 transportation system of the United States as now con- 
 ducted is unjust discrimination between persons, places, 
 commodities, or particular descriptions of traffic. The un- 
 derlying purpose and aim of the measure is the prevention 
 of these discriminations, both by declaring them unlawful 
 and adding to the remedies now available for securing re- 
 dress and enforcing punishment, and also by requiring the 
 greatest practicable degree of publicity as to the rates, finan- 
 cial operations, and method of management of the carriers. 
 
 The first section specifies the carriers which shall 
 be subject to its provisions, and in general terms re- 
 enacts the common-law provisions in regard to reason- 
 able rates, but the essential provisions of the law are 
 contained in the second and third sections, and are as 
 follows : — 
 
 Sec, 2. That if any common carrier subject to the pro- 
 
132 THE RAILWAY PROBLEM. 
 
 visions of this act shall, directly or indirectly, by any 
 special rate, rebate, drawback, or other device, charge, de- 
 mand, collect, or receive from any person or persons a 
 greater or less compensation for any service rendered, or to 
 be rendered, in the transportation of passengers or prop- 
 erty subject to the provisions of this act, than it charges, 
 demands, collects, or receives from any other person or per- 
 sons for doing for him or them a like and contemporaneous 
 service in the transportation of a like kind of traffic under 
 substantially similar circumstances and conditions, such 
 common carrier shall be deemed guilty of unjust discrim- 
 ination, which is hereby prohibited and declared unlawful. 
 
 Sec. 3. That it shall be unlawful for any common car- 
 rier subject to the provisions of this act to make or give 
 any undue or unreasonable preference or advantage to any 
 particular person, company, firm, corporation, or locality 
 or any particular description of traffic, in any respect what- 
 soever, or to subject any particular person, company, firm, 
 corporation, or locality, or any particular description of 
 traffic, to any undue or unreasonable prejudice or disadvan- 
 tage in any respect whatsoever. 
 
 Every common carrier subject to the provisions of this 
 act shall, according to their respective powers, afford all 
 reasonable, proper, and equal facilities for the interchange 
 of traffic between their respective lines, and for the receiv- 
 ing, forwarding, and delivering of passengers and property 
 to and from their several lines and those connecting there- 
 with, and shall not discriminate in their rates and charges 
 between such connecting lines ; but this shall not be con- 
 strued as requiring any such common carrier to give the use 
 of its track or terminal facilities to another carrier engaged 
 in like business. 
 
 It does not attempt to fix specific rates. At com- 
 mon law, the common carrier could not lawfully 
 charge more than a reasonable rate, but he could ac- 
 cept less ; and he could discriminate by charging one 
 
THE INTERSTATE COMMERCE ACT. 133 
 
 less than another, and could change his rates at will, 
 provided only that no rate was too high to be reason- 
 able. The law now prohibits this discrimination in 
 respect to rates, and also prescribes that rates shall 
 not be increased, except upon notice. 
 
 In all other respects the companies are as free as 
 before to fix their rates on interstate traflBc. All the 
 other sections and provisions of the law are devoted to 
 reenacting existing and well understood principles of 
 law, or to prescribing rules of evidence, or to provid- 
 ing new remedies to prevent discrimination, or ma- 
 chinery for enforcing its provisions. 
 
 The writer contends that the fourth section, which 
 contains the famous and much discussed " long and 
 short haul " clause, is not a distinct or essential pro- 
 vision. Since charging more for a short than for a 
 long haul, within the meaning of that section, would 
 be an unjust discrimination, which is prohibited by 
 the two essential sections, the writer is of the opinion 
 that if the fourth section had been omitted, the mean- 
 ing of the law would have been the same as now. 
 
 Therefore the fourth section is superfluous, except 
 to the extent that it specifies one important rule of 
 evidence in determining certain unjust discrimina- 
 tions. It has been an unfortunate provision, and has 
 probably done more than anything else to defeat the 
 beneficial purposes of the statute ; because, while it 
 was evidently intended to specify only one out of 
 many unjust discriminations, the prominence due to 
 special mention has magnified the charging of more 
 for a short haul than for a long haul into the chief, 
 and apparently the only, evil which the law was in- 
 tended to rectify; and while the section provides 
 that "it shall not be construed as authorizing any 
 
134 THE RAILWAY PROBLEM. 
 
 common carrier within the terms of the act to charge 
 and receive as great compensation for a short as for a 
 long distance," yet it has uniformly been construed 
 in practice both by the companies and tacitly by the 
 Commission to justify as great a charge for the short 
 as for the long distance. 
 
 The fifth section, which prohibits " pooling," makes 
 the contracts which it prohibits no more illegal than 
 they were before ; but it does impose penalties for en- 
 tering into such illegal contracts, which did not exist 
 before. 
 
 The machinery for enforcing the law consists prin- 
 cipally of a commission, which the act created and 
 endowed with great powers. It also conferred in- 
 creased jurisdiction upon certain courts. The rem- 
 edies consist largely of fines and penalties, but there 
 was a special remedy provided by the sixth section 
 which it was expected would be more efiicacious 
 than any other. It was publicity. The section is 
 very long, biit the gist of it is that all rates shall be 
 published, and that no more nor less than the pub- 
 lished and public rate shall be charged or collected. 
 
 The language of the section on this point is : — 
 
 And when any such common carrier shall have estab- 
 lished and published its rates, fares, and charges in compli- 
 ance with the provisions of this section, it shall be unlawful 
 for such common carrier to charge, demand, collect, or re- 
 ceive from any person or persons a greater or less compen- 
 sation for the transportation of passengers or property, or 
 for any service in connection therewith, than is specified 
 in such published schedule of rates, fares, and charges as 
 may at the time be in force. 
 
 The Senate committee which reported the law ex- 
 pected this provision of itself would be a remedy, and 
 
THE INTERSTATE COMMERCE ACT. 135 
 
 render impossible many of the evils of discrimina- 
 tion. Upon this point its report, page 198, says : — 
 
 In the judgment of the committee, one of the chief pur- 
 poses of any legislation for the regulation of interstate com- 
 merce should he to secure the fullest publicity, both as to the 
 charges made by common carriers and as to the manner in 
 which their business is conducted. 
 
 It is agreed by aU who have given the subject of railroad 
 regulation attention, that the maintenance of stable and rea- 
 sonably uniform rates is of the first importance and greatly 
 , to be desired. Neither result, it is also agreed, can be se- 
 cured without publicity, which is the surest and most efEec- 
 tive preventive of unjust discrimination. 
 
 Also on page 199 : — 
 
 The desirability of publicity as a safeguard against un- 
 just discrimination is generally conceded, but the committee 
 cannot refrain from illustrating its necessity by alluding to 
 an instance which has recently attracted its attention. 
 
 It is well understood in commercial circles that the 
 Standard Oil Company brooks no competition ; that its set- 
 tled poUcy and firm determination is to crush out all who 
 may be rash enough to enter the field against it ; that it 
 hesitates at nothing in the accomplishment of this purpose, 
 in which it has been remarkably successful, and that it fitly 
 represents the acme and perfection of corporate greed in its 
 fullest development. A recent public exposition of its 
 methods comes from Ohio, where the corporation operates 
 the Macksburg Pipe Line, which carries oil to the Cleve- 
 land and Marietta Kailroad. This road is in the hands of 
 a receiver appointed by the United States circuit court. 
 Complaint having been made to Judge Baxter of that court, 
 he investigated the rates charged for the transportation of 
 oil by the receiver, which resulted in his prompt removal by 
 the court. It was found that, while the receiver was char- 
 ging all independent shippers thirty-five cents per barrel, the 
 
136 THE RAILWAY PROBLEM. 
 
 rate to the pipe line in question was but ten cents per barrel. 
 It appeared that the Standard Oil Company owned the 
 pipes through which oil is conveyed to the road from wells 
 owned by individuals, with the exception of certain pipes 
 owned and used by George Rice, and carrying oil from his 
 wells. To get rid of this competition the assistance of the 
 receiver was sought and obtained. The company offered 
 to give the railroad $3000 worth of business each month, 
 while Rice could give but $300 worth. If its demands 
 were not complied with, it threatened to extend its pipe 
 line from Macksburg to the river at Marietta. What those 
 demands were was stated as follows in a letter filed by the 
 receiver as part of his defense : — 
 
 " The Standard Oil Company threatens to store and af- 
 terward pipe all oils under its control unless you make the 
 following arrangements, viz. : you shall make a uniform rate 
 of thirty-five cents per barrel for all persons excepting the 
 Standard Oil Company ; you shall charge them ten cents 
 per barrel for their oil, and also pay them twenty-five cents 
 per barrel out of the thirty-five cents collected of other ship- 
 pers." 
 
 No comment is needed, says the committee, upon this 
 most impudent and outrageous proposition. If matters 
 have reached such a pass that this enormously wealthy cor- 
 poration, not content with the advantage of paying less than 
 thirty per cent of the rates charged its occasional competi- 
 tors, is in a position to demand of a railroad which may de- 
 sire the privilege of carrying oil for others seventy per cent 
 of the revenue received in that way, the least that Congress 
 can do is to insist upon publicity of rates, and make efEec- 
 tive provision for letting in the full light of day upon ar- 
 rangements of this character. 
 
 Also on page 200 : — 
 
 The posting or publication of railroad rates would be of 
 no advantage to the public unless the law contemplates and 
 requires that the schedules established and posted are to be 
 
THE INTERSTATE COMMERCE ACT. 137 
 
 strictly adhered to. If variations from the published rates 
 are to be permitted, it would be useless to have them posted. 
 So far as that is concerned, information as to the established 
 or ostensible rates is now sufficiently accessible to the pub- 
 lic, and posting them would only impose a needless annoy- 
 ance and useless expense upon the corporations. 
 
 The posting or publication of rates, to be a preventive of 
 unjust discrimination, must mean that the railroads shall be 
 operated under a system of fixed rates, established by them- 
 selves, but just as inflexible as if the rate upon each article 
 of shipment, for given distances or between places named, 
 should be prescribed by statute (not the maximum or the 
 minimum, but the exact rate to be charged), and any devia- 
 tion therefrom should be declared unlawful, except when 
 the schedule is changed in such a manner as may be pro- 
 vided. A compliance with such a requirement, it is plain, 
 would occasion a complete revolution in existing methods of 
 business and of railroad management. A change as great 
 as this would be, one making necessary almost a complete 
 readjustment of the commercial relations of the railroad 
 to the community, cannot be effected easily or without 
 friction and opposition. The latter must be expected when- 
 ever it is undertaken, but the revolution to be accomplished 
 would be of incalculable advantage to the public, and can- 
 not be brought about any too soon. Publicity of rates is 
 insisted upon and practically secured in other countries, 
 and there can be no doubt that it should obtain in the 
 United States. 
 
 The beneficial effects which were expected from 
 publicity have not been realized. The law provides 
 that all changes in a tarifE once published " shall be 
 shown by printing new schedules, or shall be plainly 
 indicated upon the schedules in force at the time and 
 kept for public inspection." 
 
 If this were done, it would be possible for a per- 
 son of ordinary understanding to ascertain the legal 
 
138 THE RAILWAY PROBLEM. 
 
 rate, by inspection of the printed schedule. But 
 instead of following the law in this respect, the com- 
 panies, when the law went into effect, printed their 
 schedule then in force. From time to time, as 
 changes were made, instead of printing entirely new 
 schedules or noting the changes on the old schedules 
 as the law requires, they have printed amendments 
 to the original schedule, then amendments to the 
 amendments, etc. And as these amendments were 
 printed at the rate of several hundred per month, it 
 is easy to see that, in a very few months, to ascer- 
 tain the legal rates would involve examining several 
 hundred, and in many cases thousands, of separate 
 amendments and tracing them back until their re- 
 lations to the original schedule and to each other 
 were ascertained. This is a hopeless task. The 
 traffic managers themselves are unable to do it. And 
 while the companies print these amendments and 
 send a copy to the Commission as required by law, 
 it is a perfunctory performance, of no value for any 
 purpose, and especially of no value for the purposes 
 of publicity. Thus a most excellent provision of law 
 is rendered valueless for want of execution. In fact, 
 that may be said of the whole law. The machinery 
 which the law provided for its enforcement is wholly 
 inadequate and insignificant compared to the hercu- 
 lean task which was assigned to it. It consisted of a 
 Commission, to be known as the Interstate Commerce 
 Commission, composed of five Commissioners, having 
 its principal office in Washington ; and the small sum 
 of one hundred thousand dollars for the fiscal year 
 was appropriated for all the purposes of the act, in- 
 cluding salaries of the Commissioners and their sec- 
 retary and employees. 
 
THE INTERSTATE COMMERCE ACT. 139 
 
 Such are the physically insignificant means pro- 
 vided to set a law in force which by its provisions 
 was intended to revolutionize, against the active op- 
 position of the managers, the methods of conducting 
 transportation on more than 125,000 miles of rail- 
 way, valued at over $7,000,000,000, earning annu- 
 ally over 1823,000,000, carrying over 334,000,000 
 passengers and over 400,000,000 tons of freight an- 
 nually, — figures so large that they are hardly com- 
 prehensible. 
 
CHAPTER XV. 
 
 FIXING THE BATES. 
 
 The Interstate Law was designed to prevent un- 
 just discriminations. The committee which reported 
 it said that the underlying purpose and aim of the 
 measure is the prevention of unjust discrimination 
 " between persons, places, and commodities." In re- 
 spect to these purposes it has proved a conspicuous 
 failure. Whoever will examine critically the law and 
 the existing conditions will see that it was doomed 
 from the beginning, because it attempted the impos- 
 sible. It attempted to destroy discrimination, while 
 preserving the cause of discrimination, namely, com- 
 petition, so-called. The Senate committee, in con- 
 sidering the question, used the following language : — 
 
 " Competition has been looked upon as a safeguard 
 against extortion, and in this respect it has proved 
 effective where it has existed and when its operation 
 has not been unduly restricted. But experience has 
 shown that it is no safeguard against discrimination. 
 It cannot accomplish both purposes ; but on the con- 
 trary, where it prevents extortion it produces dig- 
 crimination." Again, " Competition does not pre- 
 vent discrimination, for the evil is most conspicuous 
 where and when competition is most active." In 
 discussing the probable effect of another provision of 
 the law, the same committee said : " There is reason 
 
FIXING THE RATES. 141 
 
 to fear that the result of rigidly enforcing the pro- 
 posed regulation would be to stifle competition in 
 numberless cases where it now exists, and is to the 
 general public interest." That is to say, competition 
 produces discrimination. Discrimination is the great 
 evil which we must prevent by law, but we fear that 
 if we prevent discrimination we shall stifle competi- 
 tion ; and therefore we must try so to frame our law 
 as to destroy discrimination and at the same time 
 preserve the competition which produces the discrim- 
 ination which we want to destroy. 
 
 The conditions remind one of the boy who crooked 
 his gun barrel, so that he might " hit it, if a deer, and 
 miss it, if a sheep." 
 
 That epigrammatic philosopher, Horace Greeley, 
 used to say, " The way to resume specie payment is 
 to resume." Following the example, it may be said, 
 the way to regulate commerce is to regulate ; and to 
 prevent unjust discrimination is to prevent it. 
 
 The admitted evils of discriminating and ever 
 fluctuating rates are growths which have afiBicted the 
 railway problem from its earliest years. Their roots 
 now spread through the whole system, and to pluck 
 them out requires the courage to attack the seat of 
 the disease and apply the specific, or the knife, as 
 may be required. It is evident that the actual rates 
 constitute the heart of this disease; therefore whoever 
 has the courage to make schedules of specific rates 
 (not maximum or minimum rates) which are free 
 from extortion or unjust discrimination and are just 
 alike to the shipper and to the railway, and at the 
 same time has the power to enforce them, and does 
 enforce them, will completely remedy the disease. 
 It is also evident that there is no other remedy. 
 
142 THE RAILWAY PROBLEM. 
 
 There can be no doubt that Congress has the power, 
 or that it can create a commission or commissions 
 endowed with the requisite power. The Interstate 
 Law recognizes the necessities of the case, but in- 
 stead of making schedules, or appointing commissions 
 to make them, it contented itself with impotently 
 enacting, in general and somewhat ambiguous terms, 
 that somebody else should make them, namely, the 
 railway officials, who, unfortunately, know no more 
 about it, and wholly lack the necessary power to en- 
 force the schedules when made. 
 
 Cowardice has been the bane of this class of legis- 
 lation from its inception. Legislatures have been 
 cowardly, commissioners have been cowardly, and 
 the companies have been cowardly. 
 
 Everybody is aware that the essential point of the 
 whole controversy has been the rates. Some legis- 
 latures have fixed maximum rates. Congress, or at 
 any rate the committee, discussed the advisability of 
 fixing both maximum and minimum rates ; but as a 
 rule they have confined themselves, as well as their 
 commissions, to the utterance of general platitudes, 
 or to squabbling over some petty detail of little im- 
 portance. 
 
 In the matter of a commission to make the rates 
 the companies have always been particularly cow- 
 ardly. Instead of boldly demanding their rights at 
 the hands of the government, to whose justice they 
 trust every other interest, and by whose justice every 
 individual right is protected, they have assumed in 
 advance that in the matter of rates the government 
 would be unjust. From the beginning they have 
 directed their heaviest guns against all propositions 
 of the government to fix the rates. They have op- 
 
FIXING THE RATES. 143 
 
 posed maximum rates, but not with the determina- 
 tion that has been directed against fixing the rates. 
 They have succeeded in surrounding rate-making 
 ■with so many apparent difficulties and mysteries 
 that they have completely overwhelmed the judg- 
 ments of the ablest men. An examination of the re- 
 port of the Senate committee on the subject of " the 
 principles upon which railway rates should be estab- 
 lished, and the limitations within which discrimina- 
 tion may be justifiable," shows that the difficulties 
 and mysteries of the business kept them always on 
 the outer edges, and never allowed them to penetrate 
 to the vital core. This subject takes up seventeen 
 pages of their report, and is treated systematically 
 in all its parts: 1. General principles. 2. Classifi- 
 cation of freight. 3. Uniformity of classification. 
 4. Discrimination between persons. 5. Concessions 
 to large shippers. 6. Discrimination between places. 
 7. Fixing of rates hy legislation impracticable. 
 
 The study of the laws as explained by the courts 
 and by elementary writers, and the consideration of 
 the conditions surrounding the problem, are convin- 
 cing that the principle of arbitration must sooner or 
 later be engrafted into the plan of making rates. 
 The State is the most disinterested party to act as 
 arbitrator ; and as making rates is a legislative func- 
 tion, a commission appointed by the legislature and 
 endowed with full authority 'to fix and enforce the 
 rates seems practicable and inevitable. 
 
 The arguments of the Senate committee upon the 
 principles of establishing rates are able, and display 
 accurate knowledge upon the matters connected there- 
 with. These facts and arguments repeatedly brought 
 them to the inevitable commission, but each time 
 
144 THE RAILWAY PROBLEM. 
 
 the apparent magnitude of the business seemed to 
 overwhelm them. Beginning with the truism that 
 " neither experience nor investigation has satisfac- 
 torily settled the many perplexing questions that are 
 encountered in attempting to determine the principle 
 upon vrhich a schedule of charges should be arranged, 
 either for a single railroad or for the entire system," 
 the committee admit that absolute uniformity is im- 
 possible, and state fairly and ably the distinction be- 
 tween just and unjust discrimination. They then 
 state in substance that whether a discrimination is 
 justifiable or unwarranted is often a question of 
 great diflSculty, and one on which the managers and 
 the shippers might honestly disagree ; at the same 
 time it is a question in which both are equally inter- 
 ested, and which of right both should have an equal 
 voice in determining. 
 
 Looking at the subject from this point of view, 
 how is it possible to resist the conclusion that this 
 question should be left to the decision of the disin- 
 terested arbitrator which has been called the " inevi- 
 table commission " ? 
 
 The committee next discussed, with unusual can- 
 dor, the unpopular rule of " charging what the traffic 
 will bear." They pointed out that such a commod- 
 ity as coal could not bear so high a rate as, say, 
 cloth, and hence the necessity of discriminating to 
 the extent of charging "a higher rate for transporting 
 cloth than for transporting the same weight of coal, 
 although the distance and other circumstances at- 
 tending the shipment might be practically the same. 
 But they could not state, because they do not exist, 
 any definite and certain rules for determining the 
 difference which should be made in the charges 
 
FIXING THE RATES. 145 
 
 between varying classes of property, such as would 
 necessitate, or even be likely to lead, different man- 
 agements or different people, however honestly they 
 might seek it, to the same conclusion. It is appa- 
 rent that without such rules one management might 
 come to the conclusion that to charge coal twelve and 
 one half per Cent of the cloth rate would be a proper 
 ratio, while another might conclude that the proper 
 percentage was, say, sixteen and two thirds per cent. 
 Then, if the rate on cloth between two points was 
 agreed upon at f 16 per ton, the rate on coal would 
 be, according to one manager, |2 ; according to an- 
 other, f 2.66. How can such a difference be adjusted 
 except by arbitration ? The freight agent will say 
 there is no relation between the rates, and that both 
 should be fixed arbitrarily ; but this is not the con- 
 clusion of the committee or of Congress. 
 
 Again, after discussing the principles which should 
 govern in classifying, the committee state: "Marked 
 differences have been found in the classifications in 
 use in different parts of the country, for which no sat- 
 isfactory reasons have been given by the railway offi- 
 cials, and which are accounted for only by the fact 
 that the different classifications are arranged inde- 
 pendently, and that the judgments of men differ upon 
 these matters as widely as upon any others. . . . 
 
 " Uniformity in this respect has been asked for al- 
 most unanimously by shippers. It is certainly much 
 to be desired, and the committee believes that it is 
 entirely practicable, . . . but the difficulty encoun- 
 tered has been, how to provide for or to require uni- 
 formity without specifically prescribing the classi- 
 fication that shall be adopted, or without giving 
 a commission authority to establish a classification, 
 
146 THE RAILWAY PROBLEM. 
 
 which would be equivalent to authorize such com- 
 mission to fix rates. 
 
 " Under existing methods," says this report, " the 
 railroad officials are the sole judges of the weight 
 that should properly be given to the almost endless 
 variety of conditions and circumstances which influ- 
 ence variation in rates. Upon such questions disin- 
 terested persons will honestly disagree, and there is 
 ample room for difference of opinion. . . . 
 
 " The committee has at considerable length pointed 
 out the great diversity of elements that enforce vari- 
 ations in rates, not to justify or excuse the inequali- 
 ties which exist, but to call attention to the almost 
 unlimited opportunities for arbitrary and unreasona- 
 ble discriminations which are afforded the railroads 
 by the fact that differences are necessary, and that it 
 is difficult, if not impossible, to determine when the 
 differences they establish at their own discretion are 
 purely arbitrary, and when they are justifiable, with- 
 out fuller knowledge of the circumstances than the 
 shipper is able to obtain." 
 
 The whole discussion by the committee tended to- 
 wards one conclusion, — that the traffic on railways 
 should be regulated by law, in the interest of the 
 carrier as well as of the people, since every evil 
 which was pointed out by the commitetee grew out 
 of the schedule of rates. With a properly arranged 
 and enforced schedule, none of these evils would be 
 possible. The " bull's eye " of the target they wanted 
 to hit was the rate schedule, and yet when ready to 
 discharge their conclusions their courage failed, and 
 they shot at the horns and tail of their bull rather 
 than at the eye. At the last minute they seemed to 
 have lost the courage of their convictions, and re- 
 
FIXING THE RATES. 147 
 
 ported that to attempt to adjust existing inequalities 
 by any system of rates established by legislation 
 would be impracticable, because difficult. " It is 
 obviously impracticable," say the committee, " for 
 Congress to resolve itself into a railroad freight office, 
 and undertake to establish schedules for the hundreds 
 of interstate lines in the United States. Those who 
 have asked the adoption of this plan of regulation 
 have suggested the establishing of rates by a com- 
 mission, but it is questionable whether a commis- 
 sion, or any similar body of men, could successfully 
 perform a work of such magnitude, involving as it 
 would infinite labor and investigation, exact know- 
 ledge as to thousands of details, and the adjustment 
 of a vast variety of conflicting interests. 
 
 " These are the rocks which have wrecked every 
 legislative committee which has had aspirations to- 
 wards regulating railways in respect to their charges : 
 
 1. The infinite labor and investigation required. 
 
 2. Want of exact knowledge. 3. The adjustment of 
 conflicting interests." 
 
 As a matter of fact, the committee have taken too 
 much for granted upon these three heads. They 
 have seen the large force of employees in the general 
 traffic offices of each company, consisting of general 
 traffic manager, assistants and clerks ; general freight 
 agent, his assistants and clerks; general passenger 
 agent, and his assistants and clerks, — and have too 
 readily concluded that all these able chiefs and their 
 staffs have performed " the infinite labor and investi- 
 gation," and therefore possess the "exact knowledge," 
 etc., and are now devoting their time to making rates 
 and " adjusting conflicting interests." 
 
 If this conclusion were correct, and the business 
 
148 THE RAILWAY PROBLEM. 
 
 of all the companies in the United States were con- 
 sidered in the aggregate, the magnitude of the labor 
 of establishing schedules of rates might well be ap- 
 palling for any commission, or moderate number 
 of commissions, to contemplate. Unfortunately, this 
 is not the case. A large part of the army of chief 
 and subordinate employees about the general traf- 
 fic oflSces are not engaged in making schedules of 
 reasonable public rates, but, on the contrary, in devis- 
 ing means secretly to avoid such rates, so as to " scoop 
 the business " as against competitive lines ; and the 
 conflicting interests which they are adjusting grow 
 out of the unjust discrimination they are practicing. 
 Destroy their power to discriminate, and there would 
 be few conflicting interests to adjust j and little other 
 occupation for the traffic department as now organ- 
 ized. 
 
 Who possesses the exact knowledge of such details 
 as would be pertinent to the construction of a sched- 
 ule of rates in conformity to the principles of the 
 law? No schedule of that kind has ever been con- 
 structed or attempted, and it is probable that exact 
 knowledge of the details usually current in the gen- 
 eral traffic offices of a railway company would not 
 materially aid in the first attempt at making such a 
 schedule. 
 
 It must be conceded that, before railway transpor- 
 tation can be conducted on the equitable principles 
 of the Interstate Law, a schedule of rates consistent 
 with the spirit of that law must be constructed, for 
 the reason that when shipments are made definite 
 prices must be named and collected. Payments of 
 rates to the railways, and payments by the compa- 
 nies of wages to the employees and of other expenses, 
 
FIXING THE RATES. 149 
 
 including interest and dividend, cannot be made in 
 the indefinite and general terms of the statute, such 
 as "just and reasonable," "special rates," "draw- 
 backs," or " other devices." 
 
 The attempt to produce such a schedule is an ex- 
 periment. With all the light which can be shed 
 upon the subject by experience or investigation, there 
 will be many points upon which different minds will 
 honestly arrive at different conclusions. Dissimilar 
 methods of procedure in the mechanical construction 
 will also produce unlike results. Hence it is inevi- 
 table that the schedules made by different manage- 
 ments will materially vary. And therefore, owing 
 to the network of railways, these variations produce 
 discriminations between localities, although each 
 schedule considered by itself might be, according to 
 the best judgment of the makers, in conformity to 
 law. 
 
 This not only produces unjust discrimination, but 
 confusion. The evil effects of discrimination between 
 places, resulting from unequal proportionate rates on 
 one line of railway, like charging more for a short 
 than a long haul, was fully considered by the Senate 
 committee, but there is no evidence that it was 
 brought to their notice that the same effects may re- 
 sult from lower rates being maintained on one line 
 than on another occupying substantially the same 
 teri'itory. This important matter will be elaborated 
 in a subsequent chapter. The assertion that confu- 
 sion and inconsistencies will creep into schedules 
 made by separate managements, acting independently, 
 does not rest upon theory. The States of Illinois and 
 Iowa, by their respective commissions, acting sepa- 
 rately, have made schedules of maximum rates for 
 
150 THE RAILWAY PROBLEM. 
 
 their respective States ; the railways, acting together 
 in their associations, have also made a schedule of 
 rates applying between Chicago and the Missouri 
 River, and therefore covering parts of both States ; 
 and the result proves the theory. Diagrams have 
 been prepared showing the different relations in re- 
 spect to rates which exist between the several classes 
 and commodities in these schedules, and follow this 
 chapter. Under penalty of fine and imprisonment, 
 the law requires that these relations shall be " with- 
 out undue or unreasonable preference or advantage," 
 which the Interstate Commission very properly ex- 
 plains to mean that a railroad company can have no 
 right to carry one kind of property at an unreason- 
 ably low rate compared with the rates that are 
 charged upon other kinds. " The question," says 
 the commission, " whether the larger rate is reason- 
 able in and of itself is not the question which such 
 a case presents. The true question is one of unjust 
 discrimination. The law cannot justify dealing with 
 one species of traffic by itself, and waging a war of 
 rates in respect to it, while at the same time keeping 
 up rates on others." 
 
 When these requirements are borne in mind, and 
 the further fact is considered that the law also im- 
 poses the responsibility upon each separate manage- 
 ment of making these rates consistent with each 
 other, it becomes interesting to see the differences 
 which arise from the exercise of only three indepen- 
 dent judgments, as shown by this set of five dia- 
 grams. 
 
 The first diagram is made from the schedule of 
 the Illinois commissioners, the second from that of 
 the Iowa commissioners, and the third combines the 
 
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FIXING THE RATES. 151 
 
 two, the Illinois schedule being in blue and the Iowa 
 schedule in red. The key to these diagrams is as 
 follows : Considering the first-class rate as one hun- 
 dred in each case, the other rates are represented as 
 percentages of the first-class rate, thus : on the Illi- 
 nois schedule the second-class rate starts at eighty- 
 six per cent of the first class ; for one hundred miles' 
 haul it is eighty per cent, for two hundred miles the 
 same, for three hundred miles eighty-one per cent, 
 and for four hundred miles eighty-three per cent. 
 While in the Iowa schedule the second-class rate 
 starts at eighty-four per cent of the first class, for 
 one hundred miles it is eighty-one per cent, for two 
 hundred miles seventy-five and one half per cent, for 
 three hutidred miles seventy per cent, and for four 
 hundred miles seventy-four per cent. In the lower 
 classes the variations become much more erratic, and 
 when the two schedules are combined upon one sheet, 
 as in the third jdiagram, the confusion arising from 
 the two becomes apparent. It is submitted that 
 neither is in compliance with the Interstate Law, for 
 it must be apparent that, granting that the proper 
 relations between the two rates for say one hundred 
 miles' haul in the Iowa schedule is as one hundred to 
 eighty-one, it must continue the same for every other 
 distance ; and hence when the relation for three hun- 
 dred miles is made as one hundred to seventy, it must 
 be wrong in the eyes of the Interstate Law. The in- 
 consistencies and confusion in the two State sched- 
 ules arise from faulty mechanical construction. Both 
 are founded upon the same principles, intending to 
 prevent discriminations, but unfortunately the com- 
 missioners ignored mathematics in their construction, 
 and relied upon guessing. Both are mileage sched- 
 
152 THE RAILWAY PROBLEM. 
 
 ules, fixing rates for each five miles of distance, start- 
 ing with rates which bore a certain ratio to each 
 other ; the whole line of rates for each class was built 
 up separately by adding certain fixed increments for 
 each five miles of haul. The increment added each 
 time to build the first-class rate was larger than that 
 used in constructing the second-class rate, but instead 
 of calculating the ratio exactly, the commissioners 
 were content to guess that "it was about right." 
 The results as revealed by the diagrams show that 
 the Illinois commissioners were the better guessers. 
 The fourth diagram is made from the freight agents' 
 schedule, which is founded on the principle of meet- 
 ing one another's competition at important points; 
 and the fifth schedule shows the three schedules com- 
 bined, the Illinois commissioners' in blue, the Iowa 
 commissioners' in red, and the freight agents' in 
 black, all three to be enforced in the same territory 
 at the same time. It also shows the net result of 
 only three independent minds acting separately to- 
 wards that uniformity which the law requires and 
 which is so universally demanded. 
 
 It may be said that the law takes no notice of in- 
 consequential errors. The errors disclosed by these 
 schedules are not inconsequential. The extreme dif- 
 ference in some classes is twenty-five per cent of the 
 first-class rate. The coarse grain rate in the freight 
 agents' schedule ranges from twenty-seven to twenty 
 per cent, the difference being seven per cent of the 
 first-class rate; equal to an absolute difference, be- 
 tween the Missouri River and Chicago, of four and 
 two tenths cents per hundredweight, or two and fifty- 
 two one hundredths cents per bushel, which, on all the 
 corn, oats, and other grains raised west of the river, 
 
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FIXING THE RATES. 153 
 
 would amount to an enormous sum. It is equivalent 
 to a profit, for a middleman who simply buys and 
 ships, of $25,200 on each million bushels, or one thou- 
 sand per cent on his necessary capital, and for the rail- 
 way company it is equal to a respectable dividend. 
 As between two towns located ten or twelve miles 
 apart on the same or different lines, such a difference 
 in favor of either would give it a large portion of the 
 trade which legitimately belongs to the other; and 
 as between dealers, a discrimination of that amount 
 in favor of one, or a few, would drive all others out 
 of the trade. 
 
 The railway companies and the public both suffer 
 from the confusion in rates ; since, where the rates 
 in the various schedules conflict, the lowest prevails, 
 which results in loss of revenue to the companies and 
 in unjust discrimination to the public. How can 
 uniformity be obtained except by referring the differ- 
 ences to a legal commission acting as a court, and 
 possessing similar authority to enforce its conclu- 
 sions ? 
 
CHAPTER XVI. 
 
 DISCEIMINATION BY PARALLEL BAILWAYS. 
 
 There is one phase of the question of unjust dis- 
 crimination as between localities which the Senate 
 committee in their report to Congress did not men- 
 tion. It seems to have been concealed from them in 
 a pile of rubbish which they evidently copied, with- 
 out analysis, from the traditions of the last twenty- 
 five years. The following extract the writer regards 
 as the rubbish pile of a very able report : — 
 
 The simple fact that differences exist which to the local 
 shipper seem unreasonable does not necessarily establish 
 the charge of unjust discrimination against him. If it were 
 possible to establish rates upon all the railroads of the 
 United States, based strictly upon the cost of the service in 
 every case, it is not improbable that many lines in the West 
 and the South would be obliged to make as great an aggre- 
 gate charge for carrying grain a hundred miles as the great 
 trunk lines, with their superior facilities and immense vol- 
 ume of business, would make for carrying the same com- 
 modity a thousand miles. 
 
 Each railroad is entitled to reasonable rates, and all that 
 can be required of it is that they shall be reasonable. What 
 is a reasonable rate on one does not necessarily determine 
 what is reasonable upon another less favorably situated and 
 of lesser earning capacity. Equality in the charges made 
 upon the same commodity for equal distances by different 
 lines in the East, in the West, and in the South cannot 
 equitably be required, nor is it the province of legislation 
 
PARALLEL RAILWAYS. 155 
 
 to attempt to place those remote from a market and poorly 
 supplied with transportation facilities upon an equality with 
 those within easy reach of a market and enjoying every 
 facility in the matter of transportation. It is not practical 
 to secure uniformity of rates as between places differently 
 situated upon the hundreds of railroads within the United 
 States, nor has it been possible to secure such equality even 
 within the limits of a single State. 
 
 Like all scrap heaps, this extract may contain some- 
 thing of value, but, as usual, it is mixed with the 
 worthless in such a manner that it can be obtained 
 only by sorting it out. But when it is read criti- 
 cally it is more remarkable for what it does not say, 
 but seems to say, than for what it really does say. 
 That " equality in the charges made upon the same 
 commodity for equal distances by different lines in 
 the East, in the West, and in the South cannot equi- 
 tably be required " is undoubtedly true, if by this 
 general statement it is only meant that lines in cer- 
 tain sections of the country, owing to the volume of 
 business in that section, can afford to cai-ry traffic at 
 a less average rate per mile than in other sections 
 where the available tonnage is less. If, on the other 
 hand, it means that it would be inequitable to exact 
 " equality in the charges made upon the same com- 
 modity for equal distances by different lines," serv- 
 ing the same district and essentially though not 
 mathematically parallel, it would seem to be untrue. 
 
 It is apparent from the context that the latter con- 
 struction was intended by the committee. That is 
 also the general opinion. With this theory as a basis, 
 the Iowa commissioners were authorized by the law 
 to make this distinction in fixing maximum rates, 
 and accordingly the railways of Iowa were divided 
 
156 THE RAILWAY PROBLEM. 
 
 into three classes, A, B, and C. Those that were 
 oldest, or whose better location had developed the 
 largest volume of trade, were put in the A class, 
 the next in respect to developed earning capacity 
 were put in the B class, and the remainder in the C 
 class. The class B railways were allowed to charge 
 fifteen per cent more, and the C class thirty per cent 
 more, than the A class ; all of which at first thought 
 appears very equitable. Now it happened that the 
 Chicago & Northwestern Company's line across the 
 State, being one of the first lines built, had developed 
 suflicient business to entitle it to go into the A class, 
 while the line of tlie Chicago, Milwaukee & St. Paul 
 Company, also extending across the State, practically 
 parallel and not many miles distant, being newer, had 
 not developed sufficient business to go into the A 
 class, and was therefore put in class B. As the rates 
 made by the commission were simply maximum rates, 
 meaning that each company might voluntarily adopt 
 the lower rate, this arrangement did not amount to 
 much. But had the commission fixed the rates, and 
 had the law said that no more and no less than the 
 rate so fixed should be charged or collected, it is easy 
 to show what an injustice would have been done by 
 such " equity " to the Chicago, Milwaukee & St. 
 Paul Company, and to every village, town, city, and 
 farm, and every industry located on its line. 
 
 Had such rates been made to apply to interstate 
 business as well, both the lines being continuous 
 from the city of Omaha through Iowa and Illinois 
 to Chicago, the injustice would have been more ap- 
 parent and the damage much greater. As a mat- 
 ter of course, nobody would ship by the high rate 
 line and pay the fifteen per cent higher rates, except 
 
PARALLEL RAILWAYS. 167 
 
 such as could not use the cheaper line without cost- 
 ing as much or more to get to it than the saving in 
 rates would amount to. Hence the high-rate line 
 would be deprived of the through business between 
 Chicago and Omaha. 
 
 Generally speaking, the rates being the same on 
 two nearly parallel railroads, the products of farming 
 and other industries of the country will seek the 
 nearest line, and hence the halfway line between the 
 two railways is the dividing line of the business ; but 
 as soon as the rates on one line are raised fifteen per 
 cent above those on the other, this dividing business 
 line moves as much nearer the higher rate line as 
 the difference in rail rates will pay for hauling by 
 team. Hence, the road with higher rates, instead of 
 getting one half the products of the intermediate 
 country, would get only say one quarter, or one 
 eighth, or perhaps in some cases even less. One half 
 or three quarters of the farmers who, when the rates 
 were the same, have come to the stations, villages, 
 and towns of one road, for the sale of their produce 
 and the purchase of their supplies, on being com- 
 pelled to go to the other road, leave the produce buy- 
 ers, the country merchant, the mechataics, and the 
 professional men that much short of their former 
 trade and business. As they had none too much be- 
 fore for the number employed, development stops and 
 the process of depopulation begins. If there should 
 be any wholesale merchants or manufacturers who 
 depended on trade at any distance from that im- 
 mediate line, with fifteen per cent against them in 
 the matter of rates they would be compelled to move 
 to the other line. 
 
 All this would react upon the interests of the rail- 
 
158 THE RAILWAY PROBLEM. 
 
 way company and curtail its business. It is unneces- 
 sary to pursue the matter further, in order to show 
 that it is not inequitable in most cases to require 
 railways serving the same district to charge the same 
 rates that are charged by the more prosperous lines ; 
 or, in other words, there is but one reasonable rate 
 between any two points, and it is applicable to all 
 roads alike which serve the same district of coun- 
 try. The other opinion which has been so univer- 
 sally adopted in argument, but not in practice, is 
 based upon the unsound theory that the measure by 
 which to judge of the reasonableness of rates is 
 solely the question of the " cost of the service." The 
 " cost of the service " may be one of the items of 
 evidence to prove the reasonableness of rates, but if 
 it were the sole criterion it is evident that many of 
 the old roads which have been injudiciously located, 
 and all new roads when first opened for business, in 
 order to charge a " reasonable rate " would be com- 
 pelled to make their rates so high as to deprive them 
 of business. Surely a rate which prohibits cannot be 
 reasonable, and rates are prohibitory if but a fraction 
 higher than those of the other line. 
 
 The example of one road charging higher rates 
 than a parallel line, which has been under considera- 
 tion, is a fine illustration of the class of unjust dis- 
 crimination casually mentioned in the last chapter, 
 arising from different lines in the same district char- 
 ging different rates for substantially the same ser- 
 vice. The Senate committee evidently overlooked 
 this class of cases, but in general language they seemed 
 to imply that it might be just and proper so to dis- 
 criminate. This class of discrimination is really more 
 disastrous, because covering a larger area, than the 
 
PARALLEL RAILWAYS. 159 
 
 discriminatiou between places upon the same line of 
 railway, — an evil which filled pages of the com- 
 mittee's report, and to prevent which the famous 
 " long and short haul clause " was invented. 
 
 To explain it satisfactorily, resort should be had 
 to the outline map following this chapter, which 
 shows the relative positions of six leading lines west 
 of Lake Michigan. If the rate at Des Moines, which 
 is on one of these lines, is lower than at other points 
 in Iowa, it would be such an unjust discrimination as 
 the law prohibits ; though it is evident that it would 
 injuriously affect only the limited territory lying 
 within a certain radius of that city. But the result 
 of the other method of discrimination would affect 
 much more extended areas. 
 
 For the sake of illustration, let it be supposed that 
 "rates have been established upon all these lines 
 based strictly on the cost of the service in every 
 case," and that it so happened that on this account 
 each alternate line charged higher rates than the 
 intermediate lines. This evidently would produce 
 alternate parallel lines of Ioa^ and high rates the 
 whole length of the State of Iowa. Under such con- 
 ditions, a cross-section profile of the rates, running 
 across the State from north to south, would show 
 low and high points succeeding each other. Places 
 located on the ridges of high rates would be discrim- 
 inated against, and would see their business slide 
 away from them down into the contiguous valleys of 
 low rates on other lines of railway, just as much to 
 their damage as though it slid into the " pothole " of 
 low rates caused by discrimination as between sta- 
 tions on the same line, which the Senate committee 
 so justly condemned, and which the law prohibits. 
 
160 THE RAILWAY PROBLEM. 
 
 To consider this kind of discrimination in a broader 
 range, it is easy to see how places located so far from 
 each other as Omaha and Kansas City, about two 
 hundred miles, may be injuriously affected by rates 
 which are relatively lower at one point than at the 
 other. Both these points are now important " pack- 
 ing points." As against the other, it must be admit- 
 ted that each is entitled by natural laws to slaughter 
 all the hogs produced in the adjacent territory, which, 
 by reason of proximity or otherwise, would naturally 
 go to each town to market without interference by 
 the railways. But when the railways, by making 
 materially lower proportionate rates at one town than 
 at the other, be it by one road which serves both 
 cities, or by two lines, one serving one city and the 
 other the other city, this natural-law is overcome, and 
 the hogs raised on farms nearer to the city of higher 
 rates will go to enrich the city of the lower rates. 
 This would appear to be an unjust discrimination 
 of which the law takes no cognizance, and therefore 
 does not prohibit. 
 
 All these discriminations are a matter of rates. If 
 the rates were made on a just and equitable scale 
 they would all disappear, and each city and each rail- 
 way would get the business it is naturally entitled 
 to. But as long as rate-making is left to the railway 
 managements, it is probable that their greed will pre- 
 vent such a just distribution of rates. 
 
 It is difficult, if not impossible, by general provi- 
 sions of a law to meet all the cases which this prob- 
 lem presents without dealing entirely in generalities. 
 The only specific provision of the Interstate Law is 
 the " long and short haul clause," of which much was 
 expected in preventing what has been termed in this 
 
Map 
 Illustrating Discrimination 
 
 Sauk Center 
 
 Parallel Lines of Railway 
 See Chapter XVI. 
 
 
 
PARALLEL RAILWAYS. 161 
 
 chapter " pothole discrimination." Its tendency has 
 been to lessen these low spots in rates on a single line, 
 but in doing this it has frequently produced a con- 
 tinuous valley of relatively low rates on one line in 
 unjust discrimination against a long ridge of rela- 
 tively high rates on neighboring lines, and thus in- 
 stead of lessening has increased the evils of unjust 
 discrimination. 
 
CHAPTER XVII. 
 
 RAILWAYS AKB AGENTS OF THE STATE. 
 
 The underlying principles of the Interstate Law 
 must be conceded to be just and equitable, but the 
 writer contends that the law falls short of the full 
 performance of the duty which the government owes 
 in the matter of regulating the rates of railway cor- 
 porations, inasmuch as it does not definitely fix them, 
 nor provide a legal commission endowed with the 
 power and the duty to enforce definite schedules. 
 Although starting with a different theory, he has 
 been forced to this conclusion by his investigations 
 of the fundamental principles of government and of 
 the laws. By the same process he also concludes that 
 the revenues collected by railway companies are not 
 ih the nature of payments for services rendered, but 
 in the nature of a tax levied and collected by exer- 
 cise of the sovereignty of the State by and under its 
 permission and license. 
 
 In this country it is the theory that all the powers 
 of the State are derived from the people. 
 
 The State has been defined as a body politic, cre- 
 ated by a " social compact by .which the whole people 
 covenant with each citizen, and each citizen cov- 
 enants with the whole people, that all shall be gov- 
 erned by certain laws for the common good." In 
 such a compact, necessarily each member parts with 
 some rights or privileges which as an individual, 
 
RAILWAYS AGENTS' OF THE STATE. 163 
 
 when not affected by relations to others, he undoubt- 
 edly possessed, and the State acquires rights, privi- 
 leges, and duties from each individual, the sum of 
 which constitutes the sovereignty of the State. 
 
 Protection of the rights of the citizens is undoubt- 
 edly the most important function of the State, but it 
 is clear that in a civilized nation it becomes necessary 
 for the State to do more than hold the mantle of pro- 
 tection over its subjects. The business of the mer- 
 chant and the manufacturer, and the various trades 
 and professions which can be prosecuted by individ- 
 ual enterprise, may require pi'otection alone. But 
 there are many matters which affect the value of 
 property and tend materially to augment the happi- 
 ness of the citizen with which it is beyond the power 
 of the individual to cope. They require the inter- 
 vention and assistance of the sovereign power of the 
 State ; hence the prosecution of such enterprises must 
 be carried on by the State, or under its license. 
 
 The functions pertaining to sovereignty may be 
 performed by the State directly, or indirectly through 
 individuals or corporations acting as its agents, to 
 whom the State has delegated the necessary sover- 
 eign power and prerogative. Thus in times of war 
 the State may issue letters of marque, conferring 
 upon individuals the sovereign prerogative of sailing 
 the seas and plundering for their own profit. The 
 building of ordinary highways is of the highest im- 
 portance to the property and happiness of the citizen. 
 Individual ownership of the land would be intolera- 
 ble without highways. They cannot be opened with- 
 out the exercise of the sovereign power. In America 
 the State seldom builds highways. It creates muni- 
 cipal corporations, usually called towns or cities, to 
 
164 THE RAILWAY PROBLEM. 
 
 which it delegates the power and duty to provide all 
 necessary and convenient highways. At the same 
 time it confers, as a necessary concomitant, the sov- 
 ereign prerogative of levying and collecting a tax for 
 the purpose of paying their cost, and the subsequent 
 expenses of keeping them in repair ; or, if their con- 
 struction is paid for with borrowed money, for the 
 purpose of paying interest on the capital borrowed, as 
 well as operating expenses. 
 
 The building of forts for the national defense and 
 the care of harbors for the accommodation of com- 
 merce are functions of the government. The United 
 States has usually pursued the policy of exercising 
 these functions directly. To raise the necessary 
 means, it has both issued its bonds and levied and 
 collected taxes. 
 
 In pursuance of this policy it has expended in and 
 about the port of New York millions of money. 
 Now, suppose it had pursued a different policy. In- 
 stead of selling its own bonds and levying and collect- 
 ing its taxes directly, suppose it had created a cor- 
 poration composed of private citizens, and conferred 
 upon such corporation the sovereign power and pre- 
 rogative to do these things. In order to obtain the 
 necessary capital, suppose it had authorized the cor- 
 poration to sell its stock and bonds; and as an in- 
 ducement had authorized it to collect for its own use 
 duties upon the imports arriving at that port. Would 
 the fact that such corporation was composed of pri- 
 vate citizens, and that its bonds and stocks were 
 owned by citizens, make the business it was prosecut- 
 ing the private business of its stockholders? Or 
 would it make the duties it collected and retained 
 any the less a tax ? Or would such an arrangement 
 
RAILWAYS AGENTS OF THE STATE. 165 
 
 with the government, permitted to such corporation 
 by virtue of its ownership of the taxes when col- 
 .lected, carry with it the right to discriminate as to 
 the amount of the tax it would collect from different 
 individuals, and thereby make a few favored import- 
 ers rich, while others became poor or were compelled 
 to quit the business ? 
 
 On the contrary, it seems clear, and it will readily 
 be admitted, that such a corporation would be "en- 
 gaged in a public employment " in effect, " holding a 
 public office." Practically it would be a department 
 of the government itself, and of right subject to its 
 control as to the manner of levying and collecting 
 duties, and as to the reasonableness of the amount to 
 be collected. It would be the imperative duty of the 
 State to see that they were collected honestly and 
 impartially, and in such a manner that no injustice 
 should be done to the humblest citizen. 
 
 To allow discriminations in the collecting of any 
 taxes, but more especially duties on imports, or the 
 taxes which when paid enter into and become part 
 of the cost of merchandise, would be subversive of 
 the principles of government. Says a distinguished 
 writer upon the subject of the law : — 
 
 One of the great ends of government is the protection 
 of private property, which in a state of nature was held by 
 precarious tenure and liable to constant invasions by supe- 
 rior force. It would not, therefore, be reasonable to suppose 
 that the citizen, in entering into a governmental compact, for 
 the purpose of appealing to the strong arm of constitutional 
 law when his rights of property were invaded, intended to 
 confer an arbitrary power of taxation upon the government, 
 in the exercise of which his property would be rendered 
 equally insecure as in the natural state. He would gain 
 
166 THE RAILWAY PROBLEM. 
 
 nothing by such a compact ; true, he would have a security 
 against the force and fraud of his neighbor, but would 
 thereby become subject to the continual plunder incident to 
 the wants of the government and the rapacity of the public 
 agents. 
 
 It now becomes pertinent to inquire in what essen- 
 tial the supposed corporation would differ from the 
 present railway corporations? It is true that rail- 
 way corporations are incorporated by the State for 
 the purpose of exercising a function of sovereignty, 
 and that, as in the case supposed, they are author- 
 ized to obtain just compensation for their services 
 and for the use of their capital by exercising the 
 sovereign prerogative of levying and collecting a 
 tax? 
 
 I. DO RAILWAY COMPANIES BXEECISE A PTJNCTION 
 OF THE STATE? 
 
 The citizen, when he became a party to that so- 
 cial compact constituting the State, surrendered what- 
 ever natural rights he may have had of strolling at 
 pleasure over the surrounding land, regardless of the 
 possessory rights of others ; and in return the State 
 undertook to provide all necessary and convenient 
 highways, to be used in common by all its subjects. 
 To conserve this and other important interests, the 
 people, in their original compact, granted to the 
 State the right of eminent domain ; that is, the right, 
 whenever necessary, to take private property for -a 
 public use. None but the State possesses this sover- 
 eign power ; therefore none but the State possesses 
 the ability to open and build highways. Hence time 
 out of mind the opening and building of highways 
 has been regarded as the exclusive function and pre- 
 
RAILWAYS AGENTS OF THE STATE. 167 
 
 rogative of sovereignty. If, therefore, railways may 
 be considered highways, the construction of them 
 must be considered the function and prerogative of 
 the State. The question as to whether railways are 
 highways, and whether it is the duty of the State to 
 provide such as are necessary and convenient, has 
 often been before the courts. There are three dis- 
 tinct classes of cases in which it has been considered. 
 First, in cases where municipal corporations have 
 been sued on bonds which they have voted in aid of 
 the construction of railways ; second, in cases where 
 railway companies have attempted to exercise the 
 right of eminent domain ; and third, in the so-called 
 Granger suits to establish the right of the legisla- 
 ture to fix rates. 
 
 In all these cases the courts have consistently held 
 to the doctrine that railways are simply improved 
 highways, or to quote the language of one : " Rail- 
 ways are but an improved highway, — one which it is 
 the duty and interest of the government to construct, 
 where public interests and convenience demand it." 
 
 It is upon this principle only that bonds can be 
 held to be valid obligations against the municipal- 
 ities voting them, or that railway companies can ex- 
 ercise the right of eminent domain to secure the right 
 of way upon which their roads are built. For the 
 sovereign has not authority to levy taxes for a pri- 
 vate purpose, or to take private property for a pri- 
 vate use. 
 
 The best opinions and the soundest reasoning re- 
 gard the construction of modern railways as a sover- 
 eign function, and where they are built by corpora- 
 tions the companies are exercising, under a license, a 
 function and prerogative which belong exclusively 
 
168 THE RAILWAY PROBLEM. 
 
 to the State. So far all are agreed. But some writ- 
 ers, who are extremely technical, and who never 
 seem to be able to look beyond the precedents relat- 
 ing to common carriers known to the common law 
 (who, however, had little in common with the pres- 
 ent railway), have expressed a doubt as to whether 
 the operation of railways came within the "same cat- 
 egory. It would seem that the road and the oper- 
 ation of it are so inseparable and so essentially one 
 that there can be no distinction between them. This 
 appears to be the consensus of opinion. An eminent 
 judge has said : " Railway companies must be con- 
 sidered as trustees or agents of the State, entrusted 
 with certain of its powers for the purpose of effecting 
 particular objects coming within the legitimate ends 
 of government. Upon no other theory is it possible 
 to justify the imposition of taxes to forward the en- 
 terprises in which they are engaged, or the exercise 
 by them of the right of eminent domain." 
 
 Another has said : " The right to establish a rail- 
 road and charge tolls being a sovereign right, the 
 legislature cannot alienate them. The extent that 
 the legislature can go is to entrust the exercise of 
 such franchises to an individual corporation as the 
 trustee or agent of the State, and subject to its con- 
 trol." 
 
 There seems to be no doubt that it is the duty, the 
 function, and the prerogative of the State to build all 
 the highways of the country, including the railways. 
 As has been said, in this country the State does not 
 build even the ordinary highways directly, but dele- 
 gates its power and duty in this respect to municipal 
 corporations. So as regards railways the State has 
 thought it wiser to farm out this department of its 
 
RAILWAYS AGENTS OF THE STATE. 169 
 
 governmental functions to corporations composed of 
 private individuals, which it has incorporated for that 
 purpose. In order to provide means to build and 
 equip them, the State, instead of issuing and selling 
 its own stocks and bonds, has authorized these cor- 
 porations to issue and sell their stocks and bonds. 
 As compensation for their services, and for the use of 
 their capital, the State has granted them the right to 
 levy and collect certain revenues, which as regards 
 passengers are levied on the persons using the roads, 
 but as regards freight are levied upon the commodi- 
 ties transported. 
 
 U. AEE THESE KEVBNUES IN THE NATURE OF 
 PAYMENTS FOR SPECIFIC SERVICES, OR ARE 
 THEY IN THE NATURE OF A PUBLIC TAX, SIMI- 
 LAR TO THE DUTIES WHICH ARE COLLECTED 
 THROUGH THE CUSTOM HOUSES? 
 
 " Inasmuch," says Vattel, " as ifc is the duty of 
 the government, with respect to the welfare of the 
 public in general and of trade in particular, to pro- 
 vide safe and commodious ways of communication, 
 whence flows the right of the State to oblige those 
 who make use of the ways it provides to contribute 
 to the expense of making and maintaining them, — 
 that is, the right to levy tolls, — it follows that the 
 right to make roads and levy toll is a prerogative of 
 sovereignty, and in the hands of a subject is a fran- 
 chise, a privilege of immunity of a public nature, 
 which cannot be exercised without legislative author- 
 ity." 
 
 It has been said, and seems to be the settled law, 
 "that if a consignor ships goods by. an ordinary car- 
 rier, who uses the common highways in common with 
 
170 THE RAILWAY PROBLEM. 
 
 all the king's subjects, having no superior rights, 
 without expressly agreeing to pay any specified sum 
 for such services, the carrier may nevertheless col- 
 lect what his services are reasonably worth, because 
 there is an implied promise to pay a quantum meruit 
 therefor, but that there is no such implied promise be- 
 tween the shipper hy railway and the railway com- 
 pany ; that the right of the company to recover for 
 such services rests not upon the law of contract, ex- 
 press or implied, but upon the license of the State to 
 collect tolls." 
 
 There is a long line of decisions in the highest 
 courts, by the most eminent judges, who hold (quot- 
 ing the language of one) that "the title of a rail- 
 way company to its rights to demand compensation 
 for this service is not derived to it upon common 
 law principles, and is not to be measured by the 
 rules of the common law ; and whether it may law- 
 fully demand compensation from a person who uses 
 its highway for the carriage of goods, in the only way 
 in which it can be used, depends upon the language 
 of its charter, and not upon the rules of the common 
 law ; and if its charter conferred the right to collect 
 tolls it could collect them. Otherwise," said the 
 learned judge, "it is impossible to see upon what 
 principle it could be contended that it was not com- 
 pellable to permit the public to use it without paying 
 toll" 
 
 It seems to be the settled doctrine of the law that " 
 the revenues collected by railway companies are taxes 
 called tolls, just as the revenues collected at the cus- 
 tom houses are taxes called duties. But some reader 
 will be sure to make the point that most of the rail- 
 ways are engaged in interstate commerce, and most 
 
RAILWAYS AGENTS OF THE STATE. 171 
 
 of them are State corporations, deriving their power 
 to collect tolls from the State ; that collecting toll 
 on interstate traffic under such authority would be 
 equivalent to levying a tax on interstate commerce 
 by a State, which is prohibited. How, then, it will be 
 asked, under the tax theorj', can railway companies 
 collect tolls on interstate business? This question is 
 not new. An act of Congress provides that railways 
 of one State may connect with railways of another 
 State so as to form through lines and transport traffic 
 from one State into another, and " receive compensa- 
 tion therefor." 
 
 If it has been satisfactorily proved that railway 
 companies are performing functions which belong ex- 
 clusively to the sovereignty of the State, under its 
 license, or as its trustees or agents, and are collecting 
 revenues by exercising the sovereign prerogative of 
 collecting taxes, it will probably be conceded that it 
 is not only the right but the duty of the State to fix 
 the rates of taxation, as well as to regulate the meth- 
 ods of collection. The State itself in collecting taxes 
 is bound to have regard to certain principles of equity. 
 The Constitution empowers Congress to levy and col- 
 lect taxes, duties, imposts, and excises, to pay public 
 debts and provide for the common defense and gen- 
 eral welfare; "but all duties, imposts, and excises 
 shall be uniform through the United States." 
 
 In the matter of levying and collecting all kinds 
 of taxes, it is a fundamental principle that the sov- 
 ereign shall act with impartiality between citizens 
 and between localities. 
 
 The matter of taxation is so important, and the 
 right to levy and collect taxes is so jealously guarded 
 in the laws and in the sentiment of the people, that 
 
172 THE RAILWAY PROBLEM. 
 
 it is hard to understand how it happens that the laws 
 which handed over the prerogative to collect tolls on 
 railways should have been so loosely drawn as to give 
 the companies an opportunity, for many years, to 
 collect their revenues in such utter disregard of the 
 principles of impartial justice. When the State con- 
 cluded that it was wise to turn over to corporations 
 the power to levy and collect this enormous tax, it 
 would seem that the foresight which has usually char- 
 acterized American law-makers would have caused 
 them scrupulously to guard and limit the authority. 
 
 History is not lacking, however, in instances where 
 such power has been granted without well-defined 
 limitations. In the dark ages of history despotic 
 rulers were accustomed to send their representatives 
 into provinces, armed with the sovereign power to 
 collect their expenses (much in the same manner that 
 railway companies now claim the right to collect 
 revenues), collecting of one man one rate, of another 
 a difEerent rate, granting to favorites " rebates," 
 which soon made them rich and powerful, while they 
 plundered both the State and the masses. These 
 representatives of despotic rulers have been known 
 to discriminate in favor of certain cities, which by 
 reason of such discrimination soon became populous 
 and magnificent, while the remainder of the province 
 became poor and squalid. 
 
 It is now not uncommon to hear the shipper say : 
 "I buy my transportation the same as I buy my 
 wheat. What I pay for either is my private affair." 
 It is not diflBcult to imagine that in those dark ages 
 the court favorite might have said : " I buy my sov- 
 ereign's protection the same as I buy my wine. What 
 I pay for either is my own concern." 
 
CHAPTER XVIII. 
 
 EAILWAYS AS COMMON CAKEIBES. 
 
 The other view, namely, that the revenues of 
 railway companies are in the nature of a specific pay- 
 ment for specific services, has probably become the 
 most common conclusion, and has undoubtedly been 
 induced by considering railway companies as com- 
 mon carriers only. The modern railway company is 
 unquestionably a common carrier, but the common 
 carrier known to the common law was not a mod- 
 ern railway company. The common -law carrier by 
 land used the common highways of the country in 
 common with all the rest of the people. The most 
 advanced carriers of persons used the stagecoach, 
 drawn by horses ; and the corresponding carrier of 
 property employed a rude wagon, also propelled by 
 horse power. To be a common carrier required no 
 sovereign grant or franchise. Anybody could be- 
 come a carrier by simply holding himself out as such. 
 He could continue in the business as long as he 
 desired, and could quit it at his pleasure. He pos- 
 sessed no exclusive privileges either under the laws 
 or by reason of his superior facilities. The humblest 
 farmer could fairly compete with him, it being only 
 a question of which possessed the best horse or 
 donkey. Under the common law, the right of the 
 carrier to collect a reasonable compensation for his 
 services rested entirely upon the principle that where 
 one man performed services for another at his re- 
 
174 THE RAILWAY PROBLEM. 
 
 quest, in the absence of an express agreement, there 
 was an implied promise to pay what the services were 
 reasonably worth. This rule applied equally to all 
 kinds of servants. The carrier possessed no royal 
 franchise to collect tolls, but simply the common 
 right to collect compensation. The services he per- 
 formed were simple and easily understood, and their 
 reasonable value could be readily ascertained. Long 
 distance transportation with its numerous complica- 
 tions was unknown, and as the highways were built 
 and repaired by the State, the questions of interest 
 on cost of construction and of maintenance were 
 eliminated from the problem. The volume of his 
 business was small. No special vehicle or motive 
 power was required. The horse and cart suited to 
 the uses of the carrier were equally suited and valu- 
 able for other purposes. 
 
 It is not so with the railway company. Each com- 
 pany has a monopoly of the use of certain roads. Its 
 road, machinery, and vehicles are especially adapted 
 to a certain use, and valueless for any other. The 
 volume of the business is such, and the conditions 
 are so variable, that to determine the cost or value 
 of any specific service may be said to be impossible. 
 
 The modern railway company can exist only by 
 special license from the government. It has the ex- 
 clusive use of its highway, and both on this account 
 and by reason of its superior facilities possesses a 
 monopoly. It is true that the courts have held that ' 
 railway rates must be reasonable, and have appar- 
 ently based this conclusion, in part at least, upon the 
 common-law rule in regard to common carriers; but 
 it would seem that it should be based as well upon 
 the principle that all taxation must be reasonable. 
 
RAILWAYS AS COMMON CARRIERS. 175 
 
 In connection with this theory it is interesting to 
 compare the "duties" upon property collected through 
 the custom houses with the " tolls " collected through 
 the station houses of the railway companies. 
 
 For the purpose of obtain- 
 ing money to be used in paying 
 interest on debts which have 
 ■been contracted on account of 
 expenditures, principally by the 
 War Department, and for pay- 
 ing operating expenses of sev- 
 eral but not all the depart- 
 ments, the government, through 
 the agents of its Treasury De- 
 partment at the custom houses, 
 collects taxes called duties, 
 which are levied upon certain 
 imports. 
 
 The aggregate amount of the 
 duties collected annually at the 
 custom houses is about $200,- 
 000,000. 
 
 The duties are usually paid 
 in the first instance by the im- 
 porter, who adds the amount so 
 paid to the original cost of his 
 goods. The duties thereafter 
 become part of the cost, and 
 are ultimately paid by the con- 
 sumer. 
 
 CONSEQUENTLY : 
 
 " 1. If any importer should be 
 permitted to pay less duty on 
 any article imported than any 
 other importer was at the same 
 time required to pay, he would 
 have an undue advantage, and 
 
 For the purpose of obtain- 
 ing money to be used in paying 
 interest on the money which 
 has been expended in the con- 
 struction of railways, and for 
 paying their operating expenses, 
 the government, through the 
 agents of its trustees, the rail- 
 way companies, at their station 
 houses, collects taxes called 
 tolls, which are levied on all 
 merchandise transported on its 
 railways. 
 
 The aggregate amount of 
 freight tolls collected annually 
 at the station houses is about 
 $700,000,000. 
 
 The tolls are usually paid in 
 the first instance by the con- 
 signee, who adds the amount so 
 paid to the original cost of his 
 goods. The tolls thereafter be- 
 come part of (Jie cost, and are 
 ultimately paid by the con- 
 sumer. 
 
 CONSEQUENTLY : 
 
 1. If any consignee should 
 be permitted to pay less toll 
 on any articles transported 
 than other consignees were at 
 the same time required to pay, 
 he would have an undue ad- 
 
176 
 
 THE RAILWAY PROBLEM. 
 
 would be enabled to monopo- 
 lize the trade in that line. 
 
 2. Every time the schedule 
 of rates of duties is changed it 
 necessarily changes the values 
 of all articles imported. 
 
 The duties are usually a ma- 
 , terial percentage of the origi- 
 nal cost, sometimes two hun- 
 dred per cent, so that changes 
 in the schedule materially af- 
 fect values. 
 
 The schedules of duties are 
 not frequently changed, the 
 same schedule remaining in 
 force sometimes as much as 
 twenty years ; hence values are 
 not frequently disturbed by 
 changes of duties. 
 
 The schedule of rates of du- 
 ties is fixed hy Congress, with 
 great deliberation and in jtuh- 
 lic, often consuming months in 
 investigation and discussion. 
 
 When the schedule of duties 
 is once fixed it is published, so 
 that every citizen who desires 
 may inform himself as to the 
 rates. 
 
 It is unlawful to collect more 
 or less than the published tariff 
 of duties. 
 
 The government takes great 
 care to enforce the law m re- 
 gard to duties, and for this 
 purpose employs a large force 
 of men to supervise and enforce, 
 their collection, taking special 
 
 vantage, and would be enabled 
 to monopolize the trade in that 
 line. 
 
 2. Every time the schedule 
 of rates of tolls is changed it 
 necessarily changes the value 
 of all articles transported. 
 
 The tolls are usually a mate- 
 rial percentage of the original 
 cost, sometimes, as when coal is 
 transported long distances, two . 
 hundred or more per cent, so 
 the changes in the schedule 
 materially affect values. 
 
 The schedules of tolls are 
 frequently changed, the same 
 schedule seldom remaining in 
 force for thirty days in succes- 
 sion ; hence values are fre- 
 quently disturbed by changes 
 of tolls. 
 
 The schedule of rates of toll 
 is fixed in secret, usually by the 
 will of one man, without delib- 
 eration, without public investi- 
 gation or discussion. 
 
 When the schedule of tolls is 
 flbced the law requires it to be 
 published, so that every citizen 
 who desires may inform him- 
 self as to the rates. 
 
 It is unlawful to collect more 
 or less than the published tariff 
 of rates. 
 
 The government takes no 
 care to enforce the law in re- 
 gard to tolls, and for this pur- 
 pose employs no force of men 
 to supervise and enforce their 
 collections. It takes no srecau- 
 
BAILWAYS AS COMMON CARRIERS. 177 
 
 precaution to see that no par- 
 tiality is shown, and to punish 
 offenders who, by collusion, 
 misrepresentation, or other- 
 wise, get imports through the 
 custom houses without paying 
 the full rate. 
 
 To enforce the laws in ref- 
 erence to its taxes called du- 
 ties and imposts, amounting to 
 scarcely $400,000,000 per an- 
 num, is the principal duty of 
 one of the great departments 
 of state, the chief of which is 
 a Cabinet officer, the employees 
 of the department being num- 
 bered by thousands. 
 
 The result is, that secret 
 " drawbacks ' ' and " rebates " 
 are not paid back to the import- 
 ers from the duties collected. 
 
 iion to see that no partiality is 
 shown, nor to punish offenders 
 who, by collusion, misrepresen- 
 tation, or otherwise, get ship- 
 ments through the station 
 houses without paying the full 
 rate. 
 
 To enforce the laws in refer- 
 ence to the taxes called tolls, 
 amounting to over $1,000,000,- 
 000 per annum, is the duty of 
 a commission composed of five 
 men, with one secretary, two 
 clerks, and a type-writer. 
 
 The result is, that secret 
 " drawbacks " and " rebates " 
 are paid back to the consignees 
 from the tolls collected to such 
 an extent that a few persons 
 have become enormously rich 
 from this source, out of taxes 
 which have been collected from 
 the people, and through this 
 chicanery transferred to the 
 pockets of individuals, without 
 consideration, and to the great 
 scandal of the whole country. 
 
CHAPTER XIX. 
 
 MAKING STANDARD AVERAGE KATES. 
 
 It is evident that if the revenues which railway 
 companies collect are taxes, the proper construction 
 of a schedule of rates will be much simpler, and may 
 be based upon entirely different lines, than if re- 
 garded as a compensation for specific services in the 
 nature of a quantum meruit. 
 
 Based on the principle of quantum meruit, it is ex- 
 tremely difficult reasonably to explain the usual prac- 
 tice of railway companies, which has been followed 
 by State commissioners and seems to be approved 
 by the Interstate Law, of charging say six times as 
 much for hauling a ton of " first-class " freight any 
 given distance as for hauling a ton say of coal the 
 same distance. The cost would necessarily be prac- 
 tically the same. It is true, the railway company be- 
 ing an insurer as well as a carrier, the greater value 
 of the ton of first-class freight might reasonably sub- 
 ject it to a higher charge on account of the risk, yet 
 it is absurd to pretend that the risk is worth the 
 usual difference in the rates. 
 
 But there is a well-known principle in taxation 
 by which this difference is easily explainable. It is 
 called public policy. 
 
 The Constitution provides that all duties shall be 
 uniform throughout the United States. But this has 
 never been construed to mean that a uniform tax 
 
MAKING STANDARD AVERAGE RATES. 179 
 
 shall be levied upon all articles imported into the 
 country. On the contrary, many are allowed to 
 come in free, while others are taxed heavily. Then, 
 among the articles which are taxed, some bear ten 
 per cent, v^hile others bear two hundred per cent or 
 more. The relative rates are determined upon two 
 different bases. When the prime object of the gov- 
 ernment is to raise all the money possible from du- 
 ties, the first consideration is what rate upon each 
 article will be likely to produce the largest aggregate 
 revenues, or, in familiar parlance, " How much will 
 it bear ? " But when the government is in easier cir- 
 cumstances, the different rates are determined more 
 largely upon the principle of public policy. This 
 principle is the basis of duties made for the purpose 
 of " protecting home industries," which has entered 
 more or less into the construction of all tariff laws 
 in this country. The constitutional requirement of 
 uniformity seems to be sufficiently regarded when the 
 rate of duty on each article is made the same to each 
 and every citizen. 
 
 All the principles of the construction of a schedule 
 of duties apply equally in the construction of a sched- 
 ule of tolls. The departments of the government 
 which depend upon the income derived from the du- 
 ties, as well as the department (the railways) which 
 relies upon the income from tolls, have certain fixed 
 interest charges, which can be definitely ascertained, 
 and certain operating expenses, the amount of which 
 can only be approximated in advance. 
 
 The important question in each department is how 
 to arrange the rates so as to produce the aggre- 
 gate income necessary to meet these fixed interest 
 charges and operating expenses, and at the same time 
 
180 THE RAILWAY PROBLEM. 
 
 observe the required uniformity and have due regard 
 to matters of public policy. This cannot be said to 
 be an easy problem. However, if all rates are made 
 by one authority, like Congress or a commission, to 
 arrive at the best possible result, which at most is 
 only an approximation, is not so difficult as at first 
 it appears. But it is manifestly impossible to main- 
 tain uniformity in the rates through schedules made 
 by different authorities, like State commissions or 
 railway managements, acting separately, for reasons 
 that have been stated and discussed in preceding chap- 
 ters. 
 
 The first step in the construction of a schedule of 
 tolls has usually been to classify the commodities 
 transported. The purpose of the classification is to 
 simplify the difficulties of rate-making by grouping 
 together the different articles which it is thought 
 should rightfully make the same contributions to- 
 wards the payment of fixed charges and operating 
 expenses. In making a schedule of duties, Congress 
 has not thought it necessary to classify imports, but 
 has named specific rates for each specific article. It 
 is evident that the same method could be pursued in 
 constructing a schedule of tolls. Hence the classi- 
 fication may be considered a measure of convenience 
 only, not of necessity. 
 
 The second step should be, although this has not 
 been the usual custom, to determine the relative rates 
 upon different classes ; that is to say, what ratio the 
 rates of one class shall bear to the rates of other 
 classes. In order to preserve that uniformity which 
 the law and every principle of equity and justice so 
 imperatively demand, this becomes a measure of 
 necessity. 
 
MAKING STANDARD AVERAGE RATES. 181 
 
 The third and last step is to determine the actual 
 rates. 
 
 The solution of all the problems presented in the 
 .different stages of schedule-making rests upon the 
 rule of uniformity, which is imperative, and upon the 
 principles of " what the traffic will bear " and of pub- 
 lic policy. The necessity of raising sufficient aggre- 
 gate revenue to meet operating expenses and interest 
 charges requires the question of "what the traffic 
 will bear " to be an ever-present consideration in the 
 making of a schedule of railway tolls, the same as in 
 making a tariff of duties. It does not necessarily 
 follow that the extreme limit will always be adopted, 
 for where there is a superabundance of tonnage the 
 rate may, for reasons of public policy, be made either 
 higher or lower than the extreme limit of what the 
 traffic will bear. In either case it will tend to lessen 
 the aggregate revenue. In the same manner, Con- 
 gress, when the requirements are small and the im- 
 ports large, can afford to impose duties on certain arti- 
 cles, for the purpose of " protecting home industries," 
 which are larger than the " traffic will bear," and by 
 so doing prevent, to a large extent, their importation, 
 and of course lessen the amount of revenue derived 
 therefrom. 
 
 As the true theory of the common expression of 
 " what the traffic will bear " is but imperfectly un- 
 derstood, it seems worth while to illustrate it. For 
 example, let the importation of steel rails be consid- 
 ered. Say the cost of making rails in England and 
 transporting them to this country is $20 per ton, and 
 the cost of making them here is $32 per ton, and 
 the annual consumption is 1,000,000 tons : the prob- 
 lem is, what rate of duty will the traffic in steel rails 
 
182 THE RAILWAY PROBLEM. 
 
 bear ? — meaning, what rate of duty imposed upon im- 
 portation of steel rails will produce the largest annual 
 revenue ? The dlHerence in cost is |12 per ton. It 
 is evident that a rate materially higher than that 
 woiald prevent all importation, and thus deprive the 
 government of revenue from that source. On the 
 other hand, a duty materially less than fl2 per ton 
 would stop manufacturing in this country, and cause 
 the whole 1,000,000 tons of annual consumption to 
 be imported and to pay the government duty. In 
 this simple form, the problem would not seem diffi- 
 cult of solution. But when the question of importing 
 rails is stated in a little more complicated form, its 
 solution is by no means so apparent. Suppose, as be- 
 fore, the cost of making rails in England and trans- 
 porting them to the port of New York is $20. Sup- 
 pose that the cost of making rails in Pittsburg is $32, 
 in Chicago $32.50, and at a cost of $20 the country 
 would consume more rails than at a cost of $32, but 
 just how many tons it would consume at either price 
 was an unknown quantity ; and further, that it was 
 unknown how great the consumption would be within 
 a radius of Pittsburg and Chicago, in which the cost 
 of transportation from those cities would be less than 
 from the port of New York, and it makes a problem 
 which presents many difficulties. It may be said 
 that, like most of the rate questions, it is insolvable. 
 The best that can be done is to exercise a sound 
 judgment and to experiment. But at the same time 
 it would be safe to say that the proper rate, — mean- 
 ing the rate that would produce the greatest revenue, 
 — would lie somewhere between $5 and $10 per ton, 
 probably nearer the former than the latter sum. It 
 is also clear that if the constitutional requirement of 
 
MAKING STANDARD AVERAGE RATES. 183 
 
 uniformity could be ignored, and the duty on rails to 
 be consumed at or near New York could be made at 
 one rate, and on rails to be consumed near Pittsburg 
 at a less rate, and on rails to be consumed at or near 
 and west of Chicago still less, the rate of greatest 
 revenue, although the question would apparently be 
 simplified, would still be a matter of speculation. 
 
 This illustration shows some of the difficulties 
 surrounding the problem of rate-making, and also 
 illustrates the fact that the principle of "charging 
 what the traffic will bear," when correctly understood, 
 does not mean charging extortionate rates ; for it is 
 easy to see that a low rate will often produce greater 
 revenues than a higher rate. 
 
 In preparing the classification, the principle last 
 referred to, as well as public policy, would prevent 
 placing silk fabric in the same class as coal, because 
 coal would not bear as high a rate as silk, and be- 
 cause it is a settled principle of public policy that in 
 indirect taxation articles of luxury shall bear a higher 
 tax than those of prime necessity. 
 
 So it seems evident that the problems presented in 
 the first two steps in the construction of a schedule 
 of tolls must be settled upon these two principles 
 as best they maj"- by the judgment of the sovereign 
 who is the sole judge of questions of public policy, 
 and his action in the premises can be limited only by 
 the contract obligation to allow his trustee to obtain, 
 if the volume of business is large enough, an aggre- 
 gate revenue sufficient to meet his expenses and to 
 pay for the use of his invested capital ; and the fur- 
 ther obligation which the law imposes of uniformity 
 as to the ratio existing between the several classes 
 for all citizens and for all localities. 
 
184 THE RAILWAY PROBLEM. 
 
 When the third step in constructing a schedule of 
 tolls, namely, tlie fixing of definite rates, is reached, 
 it must be concluded that, subject only to the two 
 obligations mentioned, the sovereign authority has 
 the undoubted right to fix them as it may deem for 
 the best interest of the greatest number. In fixing 
 such tolls the sovereign is not bound to have regard 
 to the specific cost of specific shipments, unless pub- 
 lic policy requires it ; but on the contrary, if by such 
 methods a sufficient revenue can be obtained, and 
 the best interests of the public demand it, he has the 
 undoubted right to reduce all rates to the uniformity 
 which is common in the postal service, and thereby 
 annihilate distance, by requiring any quantity of 
 freight to be hauled one hundred, one thousand, or 
 three thousand miles at the same price as for one 
 mile, or even less. As an absti'act question this con- 
 clusion cannot successfully be controverted, but as *&, 
 matter of fact it would demand the rates to be made 
 so high for short distances that such a schedule 
 would not be likely to be regarded in the line of pub- 
 lic policy, and therefore could not be sanctioned. On 
 the other hand, the greatest good to the greatest 
 number would not require the sovereign authority to 
 undertake the impossible task of ascertaining the ex- 
 act cost of each shipment, but in making rates only 
 to have general reference to cost and distances. And 
 probably after full consideration, the process of fix- 
 ing rates, which has been described as the natural 
 method in Chapter VI., would be held by the best 
 judgment to be most in line with public policy ; that 
 is, most likely to result in the greatest good to the 
 greatest number. 
 
 Although schedules have not, as a rule, been con- 
 
MAKING STANDARD AVERAGE RATES. 185 
 
 structed on these lines, yet it is probable that suffi- 
 cient data could be derived from the statistics of 
 operation to make a close approximation in the first 
 attempts at correct rates. But it is possible that 
 further experiments would have to be made, which 
 might require changes from time to time, for a few 
 years. After that, there is no apparent reason why 
 a schedule of railroad tolls might not become as per- 
 manent as a schedule of duties, subject to change 
 only in process of years, rather than as now, in cycles 
 of months. Is it possible to estimate properly what 
 a boon such permanent schedules would be to the 
 general business of this country ? 
 
 ■ Schedule-making, when taken up in the systematic 
 manner here proposed, becomes a matter of indepen- 
 dent thought and judgment on not more than four 
 distinct propositions, instead of a labor of almost 
 infinite detail, the mere contemplation of which so 
 appalled the Senate select committee, and led them 
 to say: " It is obviously impracticable for Congress 
 to resolve itself into a railroad freight office, and un- 
 dertake to establish schedules for the hundreds of 
 interstate lines in the United States." 
 
 Logically, as has been said, this labor divides itself 
 into three sections, one of which, later on, will be seen 
 to subdivide into two parts. 
 
 First. Classification. 
 
 Second. The determination as to the ratio to be 
 observed between the rates applied to the different 
 classes through the whole country. 
 
 Third. The determination of the mathematical 
 principle upon which the actual rates should be 
 worked out. 
 
 It is agreed that the classification and the ratio 
 
186 THE RAILWAY PROBLEM. 
 
 should be uniform throughout the whole country, and 
 this would not be a work of great magnitude to ac- 
 complish. These being determined, it would be 
 necessary to establish only one line of actual rates, 
 which might appropriately be termed " standard 
 rates," for it is evident that the rates for all the other 
 classes would be a fixed percentage of the line of 
 rates so established. 
 
 For the purpose of working intelligently in their 
 construction, the standard rates should be the aver- 
 age rates, meaning a line of rates which, if the clas- 
 sification were abandoned and the whole tonnage 
 carried at uniform rates, would produce the proper 
 and necessary revenue. This line of rates being es- 
 tablished, the rates for all the classes would be fixed 
 percentages of it. The next step to consider is how 
 to determine this line of rates, which will hereafter 
 be called the " standard average rates." 
 
 As has been stated in a previous chapter, there are 
 two principal divisions of the cost of transportation : 
 
 1. Terminal expenses, which include the use of 
 terminal grounds, tracks, and buildings; the use of 
 cars while standing at stations to be loaded and un- 
 loaded ; the switching of cars ; the labor, stationery, 
 etc., consumed ; proportion of general expenses ; and 
 a fair profit. 
 
 2. The haul, which includes use and repairs of 
 roadway, use of engines and cars, fuel, a proper pro- 
 portion of general expenses, a fair profit, etc. 
 
 It is useless to attempt (because impossible to ac- 
 complish) to ascertain even approximately the actual 
 amount which should be charged for either, but in a 
 general way it is apparent that on all shipments there 
 are two terminal expenses, whether the haul is ten 
 
MAKING STANDARD AVERAGE RATES. 187 
 
 miles or one thousand, more or less, and that this 
 terminal expense is practically the same on all ship- 
 ments ; and it may also be definitely stated that 
 there is no possible way of determining the precise 
 cost of hauling freight after it is in the train and 
 started on its journey. The number of cars in a 
 train, the grades, the curves, and the cost of the 
 road and of maintenance, all ever-varying and un- 
 known quantities, enter into the problem in such a 
 way that no mathematical or scientific skill can elim- 
 inate, elucidate, or ascertain them. Nothing in re- 
 gard to the cost of either the terminal expense or the 
 hauling is known or can be ascertained, except the 
 aggregate and the average; and these are such va^ 
 rying quantities, and so run into each other, that to 
 separate them requires divisions more or less arbi- 
 trary. So the only thing that can be done is to 
 approximate an average of the past, and then experi- 
 ment as to the future. While this plan is evidently 
 not perfect, yet it is the nearest possible approxima- 
 tion to accuracy, and whatever it lacks in that regard 
 is compensated for in the uniformity of its results 
 and the simplicity of its construction. 
 
 In treating this subject matters of minor impor- 
 tance must be ignored ; but there are two conditions 
 attending the problem, of such moment that they 
 should receive attention before proceeding further 
 with the construction of a schedule of standard aver- 
 age rates. 
 
 First. The railways have not been built on straight 
 lines, nor upon such a plan that each line has its own 
 distinctive territory to serve. Many important cen- 
 tres are connected by two, three, and sometimes 
 eight or even more lines, running in such a manner 
 
188 THE RAILWAY PROBLEM. 
 
 as to serve different intervening localities, but all 
 running such reasonably direct courses betv^een their 
 respective termini as to be able fairly to compete 
 with one another in through traffic. Necessarily their 
 mileage from one centre to the other varies, there 
 being always one which, though not by any means a 
 straight line, is shorter than any of the others. As 
 these lines exist, and as they have been built under 
 the express license of the sovereign, the State can- 
 not fairly ignore their existence, or arrange a schedule 
 so as to deprive any one of its fair proportion of the 
 business. Hence, as there can be only one rate be- 
 tween any two points, in making a schedule on a mile- 
 age basis tjiere can be recognized but one distance, 
 which for convenience should be the absolutely 
 straight line, which is always the shortest distance. 
 The advantage of this rule will appear hereafter. 
 
 Second. The different sections of the country 
 served by the railroads vary materially in point of 
 natural resources and population, and consequently in 
 respect to the volume of traffic which they furnish 
 railways. These conditions in their details, as where 
 one town or county is less populous than the ad- 
 joining town or county, cannot be regarded without 
 doing injustice to the railways and resulting in un- 
 just discrimination between localities ; but in respect 
 to certain grand divisions of territory they have 
 always been regarded as proper grounds for vary- 
 ing the basis of rates. For example : the territory 
 bounded on the west by a line drawn north and south 
 through Chicago, on the south by the Ohio River, 
 on the east by the Atlantic seaboard, and on the 
 north by Canada, on account of its large population 
 and tonnage should have a lower line of standard 
 
MAKING STANDARD AVERAGE RATES. 189 
 
 average rates than the territory west of Chicago and 
 east of the Missouri, which, in turn, for tlie same rea- 
 son should have a lower standard than the territory 
 west of that. 
 
 The conditions mentioned under these two heads 
 seem to complicate somewhat the construction of a 
 schedule of standard average rates; but when it is re- 
 membered that the whole question is capable of only 
 approximations, and that under the tax theory there 
 no longer exists the necessity of ascertaining the 
 quantum meruit of each, or for that matter of any 
 shipment, the difficulties arising therefrom do not ap- 
 pear very important. But if the difference in popu- 
 lation and business in the various large sections of 
 the country is to be regarded, as it is evident it 
 should be, the next step in building up the schedule 
 of standard average rates would be to agree upon 
 the boundaries of the divisions. The writer is not 
 sufficiently familiar with the problem in the South- 
 ern States to venture an opinion, but he thinks 
 that the territory north of Mason and Dixon's line 
 might fairly be divided into three grand divisions, 
 the country east of the east line of Illinois (Chi- 
 cago) being one, between the east line of Illinois 
 (Chicago) and the Missouri River another, and west 
 of the Missouri River the other. Possibly there 
 should be two or more divisions west of the Mis- 
 souri. But to keep the illustration within grasp 
 of the comprehension it will be confined to the two 
 more eastern of these supposed divisions. Judging 
 from the statistics of the past, the roads between the 
 seaboard and Chicago should earn an average of 
 about seven and one half mills per ton per mile, and 
 the roads between Chicago and the Missouri River 
 
190 THE RAILWAY PROBLEM. 
 
 about ten mills per ton per mile. The problem, there- 
 fore, is how to construct a line of standard average 
 rates in each district on the basis of a fixed charge 
 for terminal service and of a fixed rate per mile, the 
 latter reckoned on the constructive mileage equal to 
 straight lines. This standard average rate must be 
 such that, if the whole present tonnage were carried 
 at that rate, it would produce the required average 
 rate per ton per mile, or the necessary aggregate rev- 
 enue. 
 
 Like every other problem connected with rate- 
 making it is incapable of accurate solution. There 
 are too many unknown factors. How many tons 
 there will be offered for transportation, or the exact 
 distances, must always be a matter of uncertainty. 
 And yet, it is little if any more difiicult than the 
 problem which Congress grapples with whenever it 
 attempts to produce a schedule of duties on imports. 
 The quantity which will be imported at one rate, 
 compared with the quantity which would be imported 
 at a higher or lower rate, is equally as unknown as 
 the tonnage which will be transported by rail at a 
 certain rate, compared with the tonnage which would 
 be offered at a higher or a lower rate, or the dis- 
 tances it would be hauled. In both instances the ex- 
 perience of the past is the best, although an imper- 
 fect, criterion for the future. 
 
 This experience seems to prove that the terminal 
 expenses come nearer being a fixed quantity under 
 all circumstances and in all districts than the cost of 
 hauling, for the reason that experience shows that a 
 large quantity can be hauled cheaper proportionately 
 than a small quantity, — at any rate, until the maxi- 
 mum economical capacity of the road is reached ; but 
 
MAKING STANDARD AVERAGE RATES. 191 
 
 there does not seem to be the same difference in pro- 
 portionate expense at stations. Hence investigation 
 would probably show that, in regard to the questions 
 of public policy, it would be found proper to make 
 the same charge for terminal expenses in all the 
 grand divisions, and the variation in rates which is 
 recognized as just between the different grand divi- 
 sions should be produced by varying the rate per ton 
 per mile in hauling. 
 
 From a somewhat exhaustive examination of sta- 
 tistics, the writer concludes that a fair charge for 
 each terminal expense in the standard average rate 
 would be about sixty cents per ton ; and as every 
 shipment is subject to two terminal charges, one 
 at the forwarding and one at the receiving station, 
 in making such a schedule, 11.20 per ton, to cover 
 these expenses, should be the least charge, to which 
 should be added for hauling in the district between 
 Chicago and the Missouri River about five mills per 
 ton per mile, and in the district east of Chicago about 
 three mills per ton per mile. This it is believed 
 would make a schedule which would result in a close 
 approximation to the requisite average rate per ton 
 per mile of seven and one half mills east, and ten 
 mills west, of Chicago. 
 
 West of Chicago these figures would produce a 
 rate for fifty miles of $1.20 per ton for terminals, and 
 five mills per ton per mile haul, amounting to twenty- 
 five cents, which added to the $1.20 terminal expenses 
 would make a total rate of $1.45 per ton, equal to an 
 average of two and nine tenths mills per ton per 
 mile. For a distance of four hundred and fifty miles, 
 which would be approximately the longest haul, they 
 would give a total rate of $3.45 per ton, equal to an 
 
1'92 THE RAILWAY PROBLEM. 
 
 average of seYen and six tenths mills per ton per mile, 
 and for a distance of two hundred miles an average 
 rate of eleven mills per ton per mile. 
 
 It is evident that if a standard average rate were 
 adopted it would be necessary to arrange the ratio 
 between the classes so that, as near as might be, 
 there would be a tonnage bearing a proportionately 
 higher rate equal to the tonnage carried at lower 
 rates, so that the gain on the higher should offset the 
 loss on the lower rates. But whether or not the ex- 
 act figures suggested should, after investigation, be 
 deemed worthy of adoption does not affect the princi- 
 ples of this method of building up a schedule of tolls. 
 
 The method, it is believed, will commend itself for 
 its simplicity and its close approximation to accu- 
 racy as well as for its uniformity, and for the en- 
 tire absence of the elements of unjust discrimination 
 between localities. By it each locality would retain 
 its proper geographical relation to the surrounding 
 territory for the purposes of trade, in respect to the 
 natural resources of the country and the markets of 
 the world. 
 
 Tft recapitulate : Under this method to produce a 
 complete schedule of tolls, the sovereign mind and 
 judgment, whether exercised by the legislature or by 
 a commission, would need to exercise itself upon four 
 points only, for it is evident, these data being deter- 
 mined, the remainder of the work is clerical, and 
 can be done with mathematical precision. These 
 points are: 1. Classification. 2. Ratio between rates. 
 3. Proper terminal charge. 4. Rate per ton per 
 mile for haul, — the first three being uniform through- 
 out the entire country, the last varying as to certain 
 grand divisions of territory. 
 
MAKING STANDARD AVERAGE RATES. 193 
 
 There remains to be considered but one important 
 matter as to methods. It is how to accomplish the 
 task of so publishing the rates that they can be easily 
 comprehended, and in such a manner that a person 
 of ordinary capacity can ascertain by inspection the 
 exact legal rate between any two stations. 
 
 As there are over thirty thousand railway stations 
 in the United States, and as the agent at each station 
 may at any time receive shipments for any other sta- 
 tion, and to work out all these different rates and 
 present them would require the printing of at least 
 four hundred and fifty million rates, the task might 
 well be considered too enormous to contemplate. 
 Under the existing methods, the rates of the differ- 
 ent classes bear no fixed relations to each other, and 
 there are in use in some sections ten classes and as 
 many commodity rates ; hence the accomplishment of 
 the task in this case would require the working out 
 and printing of say twenty times four hundred and 
 fifty million separate rates every time the rates are 
 changed, — a labor which it is needless to say has 
 never been attempted. 
 
 Up to this time it has been customary for each 
 company to print complete schedules for its own local 
 business ; and for long distances where traffic passes 
 over several lines, it has been the custom to group all 
 the stations in certain large areas under one rate, 
 which results in most extraordinary and unexpected . 
 differences at certain points. 
 
 For the purpose of illustration and for convenience 
 of description, although not strictly correct, let it be 
 assumed that these groups are confined to State lines, 
 and that for the purpose of making rates between 
 them and the eastern seaboard all the stations in 
 
194 THE RAILWAY PROBLEM. 
 
 Illinois are in one group bearing the same rate, and 
 all the stations in Iowa are in another group bearing 
 the same rate. The rate between the seaboard and 
 the Illinois group is based upon average distance, that 
 is the distance from the seaboard to the centre line 
 of Illinois, and of the Iowa group upon the distance 
 from the seaboard to the centre line of that State. 
 The difference in distance between these two centre 
 lines being about two hundred and fifty miles, the 
 difference in the rates between the /two groups is 
 presumably not less than the costj>£JMiuling two hun- 
 dred and fifty miles, the average beigg say five mills 
 per ton per mile, or f 1.25 per ton. It is evident that 
 under these conditions the whole difference will ap- 
 pear in the rates between the seaboard, the most 
 western town in Illinois, and the most eastern town 
 in Iowa ; that is to say, the average rate from the sear 
 board to the most western town in Illinois would be 
 fl.25 per ton less than the rate to the most eastern 
 town in Iowa, say only one mile distant. It is also 
 evident that if this difference is maintained it will 
 completely paralyze the trade of the Iowa towns, 
 while it unduly augments the trade of the town in 
 Illinois, and is a most unjust discrimination and the 
 source of a great deal of complaint. This grouping 
 process affords also the opportunity for much of that 
 kind of chicanery between railway companies which 
 in freight agents' parlance is styled " manipulation 
 of " or " monkeying with " rates. 
 
 By adopting the proposed method of constructing 
 schedules such results would not occur, and by basing 
 the rates of haul on the constructive mileage of the 
 straight line between all stations the labor of ascer- 
 taining the correct rate would be much simplified, and 
 
MAKING STANDARD AVERAGE RATES. 195 
 
 the necessity for printing tariffs for the information 
 of the public (or for the use of 'the companies' sta- 
 tion agents, except for their convenience) would be 
 avoided. With a good map of the whole country 
 drawn to a scale, and a graduated rule, like an engi- 
 neer's or an architect's scale, made to the same scale 
 as the map, and graduated to miles, with the standard 
 average rate marked for each mile, or each five or 
 ten miles, it would be only a matter of applying the 
 rule to the map and measuring the distance between 
 the two points to see at a glance the legal standard 
 average rate, of which all others would be fixed per- 
 centages. Of course different scales would be pro- 
 vided for the different grand divisions of territory. 
 With these scales and a map with the boundaries of 
 the grand division clearly defined by simple meas- 
 urements, the correct rate might easily be ascertained 
 by any person of ordinary intelligence. 
 
 It must be conceded that rates thus established 
 would fit together all over the United States with 
 mathematical precision, and that, when thus made by 
 the exercise of the sovereign power, there could no 
 longer be any reason for continuing the " long and 
 short haul clause " of the act to regulate commerce, 
 because under such conditions there would be no rea- 
 son why all companies whose lines were sufficiently 
 direct for them to desire it might not be allowed to 
 participate in the traffic. 
 
 In concluding this chapter, it is proper to point out 
 that, when it is conceded that the revenues of rail- 
 ways are the result of collecting taxes, the much- 
 lalked-of " wholesale and retail principles " must be 
 abandoned, for there can be no " wholesale principle " 
 in taxation. 
 
CHAPTER XX. 
 
 "WATBKED STOCKS. 
 
 In the discussion of the last chapter, it was as- 
 sumed that there was no difficulty in determining the 
 aggregate amount of revenue which each railway 
 company was entitled to collect over its operating ex- 
 penses, for the purpose of paying interest on its debts 
 and dividends on its stocks. But in truth it must be 
 admitted that there is perhaps no part of the vexed 
 problem on which the public mind is so uninformed. 
 Well-defined ideas upon this part of the subject seem 
 to be lacking. There are certain classes of writers 
 and orators who spend a great deal of energy in de- 
 nouncing what they are pleased to term "watered 
 stocks " and " over capitalization," but to what pur- 
 pose or why they do so is not particularly clear, 
 while the officials of railway companies themselves 
 are about as unsettled as to the true rule as is the 
 community at large. To a great many companies 
 the question is interesting only as a matter of specu- 
 lative investigation, as their business and revenues 
 are as yet too small to approach the point of differ- 
 ence between the two sides to the controversy. All 
 disputants appear to agree, and it is probably the set- 
 tled conviction of the public, that this aggregate net 
 revenue should be some percentage of the cost of the 
 property, but there seems to.be no settled conviction 
 as to how the cost shall be ascertained, or, in other 
 words, what shall be considered the cost. 
 
WATERED STOCKS. 197 
 
 When used in this connection, shall the "cost" be 
 considered the amount for which any giv.en railway 
 and its appurtenances could have been built^ under 
 the most favorable circumstances, with all the ne- 
 cessary cash in hand before construction was com- 
 menced ? Or shall it be defined to mean the amount 
 which, under the circumstances existing at the time 
 the road was built, it actually did cost the company 
 which constructed it, including all the discounts it 
 was obliged to make on the sales of its securities, 
 and the commission it had to pay on the sales ; also 
 the loss of interest during construction and after the 
 line was completed, while it was developing its busi- 
 ness up to the point of earning its interest, together 
 with all the additions which have been made from 
 time to time, not paid for out of earnings ? 
 
 Beyond question, the latter definition indicates 
 what each road has actually cost the company which 
 constructed it. No one will undertake to deny that 
 some companies may have been improvident and sold 
 their securities too cheaply, or paid larger commis- 
 sions than they ought, or that, starting in with too 
 little means, they have been compelled to submit to 
 practical robbery on account of their necessities, and 
 that therefore some railways have cost more than 
 they otherwise would. On the other hand, no rail- 
 way was ever built without paying something for 
 commissions for selling its securities, without loss of 
 interest both before and after completion of its line, 
 and without selling more or less of its securities at 
 less than their par value. The outcry against wa- 
 tered stocks and over capitalization is based largely 
 upon the Utopian theory that roads may and should 
 be built without any such expenses or discounts. 
 
198 THE RAILWAY PROBLEM. 
 
 But the point now under consideration is, which 
 definition of the word " cost " shall be adopted as the 
 basis of reasonable aggregate revenues ? 
 
 There is one test which seems to the writer con- 
 clusive. It is foreshadowed in the question, What 
 meaning would have been attached to the word " cost " 
 in this connection had the State built the roads in- 
 stead of delegating its powers and prerogatives to the 
 corporations? It must be admitted that had the 
 State undertaken the construction of the railways, 
 without the intervention of the corporations, in or- 
 der to raise the necessary money it would have been 
 obliged to issue its bonds and to go to the expense of 
 negotiating them, and the net proceeds in cash would 
 have been the amount available for direct construc- 
 tion. The discount on the sale of the bonds, if any, 
 the commissions paid for selling them, the loss of in- 
 terest during construction and after, while the busi- 
 ness was developing, the additions to the property 
 made from time to time, would all have entered into 
 the cost. Consequently, it seems beyond question 
 that if the State had built the roads, the latter defi- 
 nition of "cost" would have been the correct one, 
 and on that cost the State would have been compelled 
 to pay interest. In order to pay that interest the 
 State would have been obliged to levy and collect 
 sufficient taxes, either in rates upon the traffic of the 
 roads or otherwise. 
 
 Therefore the writer concludes that the same de- 
 finition of " cost " must apply to the roads which 
 have been built by the companies as the agents or 
 trustees of the State ; and in the absence of actual 
 fraud, the companies are entitled, if there is traffic 
 enough, to collect aggregate net revenues sufficient to 
 
WATERED STOCKS. 199 
 
 p£|,y the interest on their debts and a reasonable div- 
 idend on their stocks. 
 
 It is no answer to this conclusion to say that the 
 State could have sold its bonds at a less discount, 
 and thereby made the cost less. For, whether this 
 be true or not, the State had the first right to under- 
 take the construction, but voluntarily contracted with 
 the corporations to do it, thinking all the time that 
 this was the better course. It may be pointed out 
 that it is by no means certain that the State could 
 have sold its bonds in the same quantity and at the 
 same times at a smaller discount. It should be re- 
 membered that at or about the time the first Pa- 
 cific road was building, the bonds of the United 
 States, bearing seven and three tenths per cent inter- 
 est, sold in the markets of the world for a little over 
 thirty-five per cent of their par value. 
 
 It is no answer to say that many roads have been 
 built which were not required, and are practically 
 useless; for not one of these roads were or could 
 have been built, without the express authority of the 
 State ; and if any roads have been constructed which 
 were not required for the public good, it is because 
 the State has been remiss in its duty, and the State 
 must therefore be estopped from making such claim. 
 
 Nor is it a proper answer to say that some of the 
 companies have been improvident, having sold their 
 securities too cheaply, or paid too high commissions 
 for services in selling, or agreed upon too high a rate 
 of interest ; for in all these matters the companies 
 have been the gitasi-agents of the State, have acted 
 under and in pursuance of its authority. Therefore 
 the State cannot in equity repudiate these securities, 
 except where actual fraud may be proved, any more 
 
200 THE RAILWAY PROBLEM. 
 
 than it could repudiate its own direct obligations, 
 had they been sold at a price which now seems too 
 cheap, in order to build the roads without the inter- 
 vention of the companies. 
 
 There can be little doubt that the States have 
 been grossly improvident in their legislation upon 
 this point. Their general incorporation laws have 
 been an open power of attorney, for any who might 
 choose to become their agents or trustees, to per- 
 form this important function and prerogative of sov- 
 ereignty. The looseness with which these legislative 
 enactments have been drawn has often been a sub- 
 ject of remark. 
 
 In an address before the American Bar Association 
 in 1887, Mr. Hitchcock said : — 
 
 It is an extraordinary fact that the power of eminent 
 domain, which the State itself confessedly ought never to 
 use save on grounds of public necessity, should be at the 
 command of irresponsible individuals for purposes of pri- 
 vate gain, not only without any 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 speculative purposes. In Missouri there is nothing 
 to prevent any five men, whose combined capital would not 
 enable them to build five miles of track on a level prairie, 
 from forming a railroad corporation, with power to construct 
 a road of five hundred miles long, and to condemn private 
 property for that purpose, for a line whose construction no 
 public interest demands, and from which no experienced 
 man could expect dividends to accrue. 
 
 If in this manner the State has allowed unneces- 
 sary duplication of railways, which now claim the 
 right to exist at the expense of the public, it should 
 hasten to repeal its statutes, or so change them as tp 
 
WATERED STOCKS. 201 
 
 prevent an extension of the evil. But it cannot in 
 honor repudiate the obligations which have been put 
 out in pursuance of its authority by the corporations 
 which already exist. 
 
 It is not claimed that the State has guaranteed the 
 bonds and stocks of railway companies, but it is 
 claimed that, these stocks and bonds having been is- 
 sued by the direct authority of the State, up to the 
 limits of "what the traffic will bear "if necessary, 
 within the proper meaning of this phrase, the State 
 is bound to allow the existing railway companies to 
 collect revenues sufficient to pay the stipulated inter- 
 ests on their bonds until maturity, and a fair rate of 
 dividends on their stocks. For the State to make 
 lower rates is repudiation. 
 
 Upon this basis, rates in America would be lower 
 than in any other country in the would. The dif- 
 ference in dispute between those who cry " watered 
 stocks" and those who maintain the principle here 
 enunciated would not probably amount to more than 
 one tenth of one mill per ton per mile upon the ton- 
 nage of the railroads of the United States. 
 
 This amount is so infinitesimal in comparison with 
 the value of good faith that right-thinking men can- 
 not object to it. 
 
CHAPTER XXI. 
 
 THE STO.CK EXCHANGE. 
 
 There is yet another view of this problem, which 
 appeals more strongly, if possible, for State control 
 of rates than any which have been presented. It is 
 the existing relations between the railway companies 
 and the stock exchanges. 
 
 Putting the case briefly, it may be premised that 
 railway companies and stock exchanges possess cer- 
 tain legitimate functions, and when legitimately per- 
 formed .these are of great value; but when illegiti- 
 mately used, tJiey constitute the most perfect machinery 
 for the purpose of legalized robbery that the human 
 intellect is capable of devising. They present the 
 opportunity and the temptation to plunder the un- 
 wary and to "fleece the lambs" largely through the 
 ability to make rates. 
 
 The legitimate function of a stock exchange is to 
 afford opportunity and facilities for dealing in securi- 
 ties ; that is, for actual sales and purchases between 
 investors and owners. The illegitimate use consists 
 in conducting purely gambling transactions under 
 the color of sales and purchases. Through its ma- 
 chinery a man can sell what he has not as easily as 
 what he has. Its transactions are secret so far as 
 the identity of buyer or seller is concerned. This 
 fact, together with the practice of dealing on a mar- 
 gin, facilitates the purely gambling features. With 
 
THE STOCK EXCHANGE. 203 
 
 this machinery at hand, the man who wields the 
 unseen power, behind the ostensible manager, may 
 secretly sell the stock of his own or of any competing 
 line " short," and by ordering a cut in rates on the 
 line he controls depreciate the value of all stocks, 
 then secretly buy in his "short sales," and reap an 
 enormous profit. What is this but robbery ? And 
 what power can prevent it but the government, by 
 taking the power of making or " cutting " rates out 
 of the hands of men who are subject to such tempta- 
 tions ? 
 
 The different phases of " working them up " and 
 then " working them down " by means of the rate- 
 making power are too familiar to require elaboration. 
 Let the bona fide investors in railway securities, as 
 well as the people who are only patrons of these cor- 
 porations, demand that the government shall fix the 
 rates, and then employ all the machinery of the gov- 
 ernment to enforce the rates, and thus end forever 
 this disgraceful and wicked phase of the business, 
 compared with which the Louisiana Lottery scheme 
 and the business conducted in the Casino at Monte 
 Carlo are honorable and honest. 
 
CHAPTER XXII. 
 
 ENFOECING THE RATES. 
 
 Whek the one authority to determine the rates, 
 which is so essential to uniformity, is sought for, the 
 dual character of the sovereign power in this coun- 
 try seems an insurmountable diflBculty. The various 
 States are sovereigns in respect to some matters, 
 while the United States is a sovereign as to others. 
 In the matter of trafSc of railways each State is a 
 sovereign within its borders, while as to traffic which 
 passes between the States, known as "interstate 
 commerce," the United States is the sovereign. 
 
 The fixing of rates of tolls is the prerogative of the 
 legislative branch of government; hence it follows 
 that Congress is the one tribunal which has the au- 
 thority to establish a schedule of uniform tolls on in- 
 terstate traffic, which is much the larger part of the 
 railway traffic of the country. 
 
 It does not follow, however, that Congress must 
 perform this duty directly, for the courts have held 
 that the power may be delegated to a commission ; 
 and the question whether it is policy for Congress to 
 fix railway tolls directly, as it does duties on imports, 
 or indirectly through a commission, is worthy of con- 
 sideration, and much may be said in favor of each 
 side. Congress would undoubtedly act with greater 
 deliberation, and perhaps with more publicity, which 
 is important; on the other hand, a commission could 
 
ENFORCING THE RATES. 205 
 
 investigate and experiment to better advantage, which 
 under the present conditions is essential. 
 
 If the duty should be delegated to a commission, it 
 seems clear that the comuiission, under proper gen- 
 eral regulations, should possess but the one function 
 of making and changing schedules of tolls as experi- 
 ence might show to be best. The great fault of com- 
 missions heretofore created by Congress and by State 
 legislatures is, that they have usually been endowed 
 with the legislative function of determining rates, 
 with certain semi-judicial power, and also with execu- 
 tive duties. The combining of legislative, judicial, 
 and executive functions in one body is contrary to 
 the genius of American institutions. In the Con- 
 stitution of the United States, and in those of the 
 various States, these powers have been carefully sep- 
 arated. Such separation has been considered essen- 
 tial, and the encroachment of one branch of the gov- 
 ernment upon the functions of the other has been 
 jealously guarded against. 
 
 Human nature has not yet reached that point 
 where it may be considered safe or proper for a com- 
 mission to act as a court to construe the laws which 
 it has enacted, or to pass judgment in cases where it 
 is also the prosecuting officer. The mere statement 
 of the proposition seems conclusive, and therefore 
 needs no argument. 
 
 Of course it is useless to make laws without pro- 
 viding some instrumentality to enforce them. And 
 it is clear that the duty of executing them should 
 be placed under the direct control of the executive 
 department of government. It would seem that the 
 execution of laws regulating over a hundred and 
 sixty thousand miles of railway, representing invested 
 
206 THE RAILWAY PROBLEM. 
 
 capital to the amount of over ten thousand millions 
 of dollars, and collecting annually out of a business 
 which concerns every citizen tolls to the amount of 
 over a thousand millions of dollars, equal to two and 
 one half times the total revenue of the government, 
 is of sufficient importance to command the services of 
 a distinct department, whose chief should be a cabinet 
 minister. There is no nation which has so many 
 miles of railway, or whose internal commerce con- 
 ducted by railways is comparable in point of magni- 
 tude with that of the United States, and there is no 
 other government which has not raised the chief ex- 
 ecutive of this department to the dignity of a cabinet 
 officer. 
 
 This enormous business is now in the control of 
 several hundred petty chieftains, who are practically 
 independent sovereigns, exercising functions and pre- 
 rogatives in defiance of the laws, and practically deny- 
 ing their amenability to the laws of the country. If 
 the government would seek to bring them to terms 
 and compel them to recognize and obey the laws, it 
 must use the means necessary to accomplish the end. 
 It must have executive officers sufficient in number 
 as well as armed with adequate power and dignity to 
 command their respect. The present Interstate Com- 
 merce Act is in this respect entirely inadequate. 
 The commission which it creates consists of five per- 
 sons. It has authority to employ a secretary at a 
 salary of $3,500 per annum, and "to employ and fix 
 the compensation of such other employees as it may 
 find necessary," subject to the approval of the Secre- 
 tary of the Interior; but the whole appropriation for 
 a year, from which to pay their own salaries and ex- 
 penses, the salaries of their secretary and " other em- 
 
ENFORCING THE RATES. 207 
 
 ployees," is only $100,000. Its duties as prescribed 
 by law seem to be to a certain extent legislative, 
 judicial, and executive, and when considered in con- 
 nection with the business with which they have to do 
 are entirely beyond the physical or intellectual powers 
 of any five men. The power conferred upon them to 
 enforce their judicial orders is the power "to scold." 
 The penalties of the law which the courts are em- 
 powered to impose are certainly severe, but the law 
 has been operative for about four years without any 
 convictions, and yet no well-informed person is igno- 
 rant of the fact that the law has not been obeyed. 
 The president of a large system is said to have re- 
 marked "that if all who had offended against the 
 law were convicted, there would not be jails enough 
 in the United States to hold them." It is evident 
 that the government has not provided adequate ma- 
 chinery for enforcing the law. 
 
 Whether laws of this nature can be enforced by 
 means of. fines and penalties and the ordinary com- 
 mon law remedies may be considered a question of 
 grave doubt. In considering this question, a very 
 learned judge, the late Chief Justice Ryan, of Wis- 
 consin, used the following language : — 
 
 In our day the common law has encountered in England, 
 as in this country, a new power, unknown to its founders, 
 practically too strong for its ordinary private remedies. 
 The growth of great corporations, centres of vast wealth 
 and power, new and potent elements of social influence, 
 overrunning the country with their works and their traffic 
 throughout all England, has been marvelous during the last 
 half century. It is very certain that the country has gained 
 largely by them in commerce and development. But such 
 aggregations of capital and power, outside of public control, 
 
208 THE RAILWAY PROBLEM. 
 
 are dangerous to public and private right, and are practi- 
 cally above many public restraints of the common law, and 
 all ordinary remedies of the common law for private wrongs. 
 Their influence is so large, their capacity of resistance so 
 formidable, their powers of oppression so various, that few 
 private persons could litigate with them, still fewer private 
 persons would litigate with them, for the little rights or the 
 little wrongs which go so far to make up the measure of 
 average prosperity of life. It would have been a mockery 
 of justice to have left corporations, counting their capital by 
 millions, their lines of railroads by hundreds and even soipe- 
 times by thousands of miles, their servants by multitudes, 
 their customers by the active members of society, subject 
 only to, the common -law liabilities and remedies wHich 
 were adequate protection against turnpike and bridge and 
 ferry companies, in one view of their relations to the pub- 
 lic ; and, in" another view, to the same liabilities and reme- 
 dies which were found sufficient for common carriers, who 
 carried passengers by a daily line of stages and goods by a 
 weekly wagon, or both by a few coasting or inland craft, 
 with a capital and influence often less than those of a pros- 
 perous village shopkeeper. The common -law' remedies, 
 sufficient against these, were, in a great degree, impotent 
 against the great railway companies, — always too powerful 
 for private right, often too powerful for their own good. It 
 was in these circumstances that the English courts of equity 
 applied their restraining jurisdiction at public or private 
 suit, and laid on these great companies the strong hand of 
 equitable control. And all England had occasion to bless 
 the courage and integrity of her great judges, who used so 
 ably and so freely and so beneficially the equity writ, and 
 held great corporations to strict regard to public and pri- 
 vate right. 
 
 There can be no doubt that in this railway problem 
 the law has encountered a new power, practically too 
 strong for its ordinary processes and remedies. The 
 
ENFORCING THE RATES. 209 
 
 transactions of one of the large railway companies 
 are so numerous and rapid, covering such a large 
 area, and are so intricate, that to pursue all their of- 
 fenses with the slow processes of the law would soon 
 overwhelm every court in the land with suits of this 
 character to the exclusion of all others. Probably it 
 would be no exaggeration to say that, if the cases 
 were taken up and prosecuted to conviction in their 
 chronological order, the man who was cautious 
 enough to abstain from law-breaking for say two 
 weeks could go on from that time defying the law 
 with impunity, as the docket would after that be so 
 crowded that his case would not be reached during 
 the remainder of his life. 
 
 Such new conditions would seem to require new 
 remedies. Courts of equity sometimes deal with such 
 matters in a very effective manner. They adminis- 
 ter that " ounce of prevention which is better than a 
 pound of cure." Equity courts not unfrequently go 
 in advance of legislation in this direction. Lord Oot- 
 tenham, under similar circumstances, once said : • " I 
 have before taken occasion to observe that. I thought 
 it the duty of this court to adapt its practice and 
 course of proceedings, as far as possible, to the exist- 
 ing state of society, and to apply its jurisdiction to 
 all those new cases which, from the progress daily 
 making in the affairs of men, must continually arise ; 
 and not, from too strict adherence to forms and rules 
 established under very different circumstances, de- 
 cline to administer justice and enforce rights for 
 which there is no other remedy." 
 
 The act to regulate commerce between the States 
 is a law against unjust discrimination. ' But the 
 methods of discrimination may be so secret and so 
 
210 THE RAILWAY PROBLEM. 
 
 numerous, since the machinery for collecting reve- 
 nues is so vast, consisting of so many independent 
 parts, covering such immense areas of country, and 
 the accounts, when finally collected and recorded in 
 the general auditor's oflBce, are so voluminous, that to 
 discover the legal evidence of violations of the law is 
 a work of prodigious proportions ; while to discover 
 all the discriminations which may possibly be prac- 
 ticed may be said to be an impossible task for any 
 public officer, no matter how great his individual ca- 
 pacity, or how full and ample his legal authority for 
 investigation may be. Unjust discriminations may 
 be carried on to an indefinite extent by means of 
 underbilling in weights, by false classification, and 
 by various other methods and subterfuges known 
 to the craft, of whicb both the general auditor, who 
 has full control of all the accounts, and the treasurer, 
 who receives all the money collected for revenues, 
 may be entirely ignorant. Consequently, the evi- 
 dence of such breaches of the law would not appear 
 in any of their accounts, or indeed in the records of 
 any of the departments of the company, and the facts, 
 not being a matter of record, would be known only 
 to a few agents and the shipper who was particepa 
 criminis. It must be evident that a system of fines 
 and penalties and other remedies known to the com- 
 mon law is entirely inadequate to cope with such 
 conditions. It seems to present a case for Congress 
 to follow the enlightened course of the equity courts, 
 and, in the language of Lord Cottenham, already 
 quoted, to apply legislation to " all those new cases 
 which, from the progress daily making in the affairs 
 of men, must continually arise ; and not, from toO 
 strict adherence to forms and rules established under 
 
ENFORCING THE RATES. 211 
 
 very different circumstances, decline to administer 
 justice and enforce rights for which there is no other 
 remedy." 
 
 What is the new remedy which these conditions 
 require ? Clearly, if the government would enforce 
 its laws against the railway companies, its chief 
 executive ofiBcer who has charge of this department, 
 whenever he becomes satisiied that any management 
 is persistently disobeying the laws, should have power 
 to take possession of the property and manage it 
 through the intervention of a receiver or otherwise, 
 until he can have satisfactory assurances that the law 
 will thereafter be obeyed. The enactment of a law 
 giving this power would probably be effective to pre- 
 vent discriminations and other violations of law with- 
 out being actually set in motion. Such a law, if 
 enforced, would reach the real culprit, where fines 
 and penalties reach only their representatives and 
 employees. During the four years that the Inter- 
 state Law has been in existence, who has been fined ? 
 Just one poor freight agent, who was undoubtedly 
 following his instructions. It should be remembered 
 that the sovereign power of a corporation is in the 
 stockholders, but in this country it is not the habit 
 of stockholders to attend to their duty in this regard 
 in person, but to entrust it to an agent or agents. 
 Therefore the real management of an American rail- 
 way is not in the hands of its board of directors, its 
 president, or its general manager, but usually of 
 so-called bankers who hold the proxies of the stock- 
 holders. Consequently, if the law would control 
 these corporations, and so protect the rights of the 
 general public, the investors who hold the bonds is- 
 sued by the companies, and are therefore the owners, 
 
212 THE RAILWAY PROBLEM. ' 
 
 but have no voice in their management, as well as 
 the stockholders, its remedies aiust reach the seat of 
 power ; that is, the cabal who manage to hold the 
 proxies, and whose only source of profit in connection 
 with railways is derived from trading in their securi- 
 ties, and whose direct interest in the shares of the 
 corporation they control is just as liable to be a 
 " short " as a " long " interest. 
 
 Such a remedy as suggested, if adopted by an act 
 of Congress, would not be a new feature in congres- 
 sional legislation. Indeed, it is not clear but, under 
 the laws as they now exist, courts of equity, upon an 
 application by the Attorney-General, would be justi- 
 fied in adopting the remedy. But be that as it may. 
 Congress has a precedent for such legislation in the 
 National Banking Act. Under that law the comp- 
 troller of the currency is the head of the bureau of 
 the Treasury Department, having direct supervision 
 of national banks. Section 5234 of the Revised Stat- 
 utes of the United States provides : " On hecoming sat- 
 isfied, as specified in Sections 5226 and 5227, that any 
 association has refused to pay its circulating notes as 
 therein mentioned, and is in default, the comptroller 
 of the currency may appoint a receiver," etc. " Such 
 receiver, under the direction of the comptroller, shall 
 take possession of the books, records, and assets of 
 every description of such association," etc. By an 
 amendment in 1879 this extraordinary remedy was 
 extended to almost every violation of the act. 
 
 The law regulating the business of distilling spirits 
 is a stronger example of the right of Congress to 
 adopt new remedies especially fitted to reach the 
 necessities of new conditions. The distilling busi- 
 ness is regulated to the minutest detail, and from the 
 
ENFORCING THE RATES. .213 
 
 time the distillery commences business until it ceases, 
 be it one year or twenty, it is continuously under 
 the immediate control of an officer of the Internal 
 Revenue Department of the government. 
 
 It should be pointed out that the action of the 
 government in taking possession of a railroad by a 
 receiver or otherwise, for the purpose of enforcing 
 government regulations, would not affect the owner- 
 ship of the property. It would be a measure affect- 
 ing only the management ; and it would seem that 
 the right to regulate carries with it the power to reg- 
 ulate, and if it is necessary, in order to enforce the 
 government regulation, to take possession of the prop- 
 erty. Congress would have the power, and as to the 
 necessity Congress would be the judge. 
 
CHAPTER XXIII. 
 
 STATE OR NATION. 
 
 When the conflicting provisions of the statutes of 
 the various States and the action of the State com- 
 missioners on the subject under consideration are re- 
 viewed, one may well despair of ever being able to 
 reduce the separate action of the States relating to 
 State traffic to a system of uniformity. It is not 
 impossible, however, if Congress and the general gov- 
 ernment should adopt adequate measures of regula- 
 tion, that the various States might regard such action 
 as a precedent worthy to be followed in the interest 
 of uniformity, which is so much desired. There are 
 many reasons besides those in the interest of uniform- 
 ity which make it desirable to transfer the entire 
 control of this important matter to the regulation of 
 the nation. 
 
 First, because of its constitution and more extended 
 sessions, Congress is able to consider the subject with 
 greater deliberation, and therefore with more intelli- 
 gence, than can a legislature composed of members 
 who, as a rule, hold their office for but one short ses- 
 sion of about sixty days' duration. There would also 
 be removed from local legislation a fruitful source of 
 corruption, which is gradually sapping the founda- 
 tions of public morality. It is admitted with shame, 
 but so palpable a truth cannot be denied, that in 
 these latter days a class of unscrupulous local politi- 
 
STATE OR NATION. 215 
 
 cians have come into notoriety who, by means well 
 understood, are enabled to secure election to State 
 legislatures, which they desire for no other purpose 
 than to "make a stake," by blackmailing railway 
 companies, through the introduction of plausible- 
 looking bills, which would do great injustice if they 
 became laws. In an evil day railway companies 
 were induced to buy their peace from the attacks of 
 these unprincipled men. This sowed the seeds for 
 an annually returning crop at each session of the leg- 
 islatures, and, as is usual in such cases, the crop and 
 the price increase year by year. This feature of local 
 legislation has become so pronounced that it cannot be 
 overlooked, even by strangers. Professor Bryce, than 
 whom no foreigner ever spoke more fairly and dis- 
 criminatingly of American institutions, in writing of 
 the legislature of the State of New York, says : " New 
 York and Pennsylvania have so bad a name that 
 people profess to be surprised when a good act passes, 
 and a strong governor is kept constantly at work 
 vetoing bills corruptly obtained, or mischievous in 
 themselves." The legislature of New York " has to 
 deal with immensely powerful corporations, such as 
 the great railroads which traverse it on their way 
 west. These corporations are the bane of State pol- 
 itics, for their management is secret, being usually in 
 the hands of one or two capitalists, and their wealth 
 is so great that they can offer bribes at which ordinary 
 virtue grows pale. There are many honest men in 
 the assembly, and a few rich men who do not need a 
 douceur, but the proportion of tainted men is large 
 enough to pollute the whole lump. Of what the 
 bribe-taker gets, he keeps a part for himself, using 
 the rest to buy the doubtful votes of purchasable 
 
216 THE RAILWAY PROBLEM. 
 
 people; to others he promises his assistance when 
 they need it ; and when by such log-rolling he has 
 secured a considerable backing, he goes to honest 
 men, among whom, of course, he has a considerable 
 acquaintance, puts the matter to them in a plausi- 
 ble way, — they are probably plain farmers from the 
 rural districts, — and so gains his majority. Each 
 great corporation keeps an agent at Albany, the capi- 
 tal of the State, who has authority to buy off the pro- 
 moters of hostile hills, and to employ the requisite 
 professional lobbyists. . . . This sort of thing goes 
 on, or has lately gone on, in several other States, 
 though nowhere on so grand a scale." 
 
 The withdrawal of this " bane," as Professor Bryce 
 so aptly terms it, from State and local legislation, is 
 a matter of importance. 
 
 In the second place, the problem of regulating rail- 
 way tolls and of managing railways is essentially and 
 practically indivisible, by State lines or otherwise, 
 and therefore it is not clear but that, whenever the 
 question may come before the courts, it may be held 
 that the aVithority of Congress to deal with interstate 
 traffic carries with it, as a necessary and inseparable 
 part of the subject, the right to regulate the traffic 
 which is now assumed to be controlled by the several 
 States. The courts have held that the States have 
 authority to regulate strictly State traffic in the ab- 
 sence of congressional action, but their decisions do 
 not preclude the doctrine that Congress may have 
 exclusive jurisdiction whenever it may choose to exer- 
 cise the authority. There is a line of reasoning which 
 would lead to that conclusion. It may be that many 
 will not care to follow the lead of the writer as to the 
 measure of aggregate net revenue which railway com- 
 
STATE OR NATION. 217 
 
 panies are entitled to collect in tolls, but it is evident 
 that before the tolls can be intelligently determined 
 some measure of such aggregate revenue must be as- 
 certained. The question would then arise, What pro- 
 portion must be levied upoii State and interstate traf- 
 fic respectively ? If the State should refuse to levy 
 its share (and how could such share be ascertained ?), 
 then more than its share would have to be levied on 
 interstate traffic ; and thus the States, by indirection, 
 would be able to do -what the Constitution prohibits. 
 Of course, when the Constitution was adopted, rail- 
 ways and railway traffic were unknown. But it was 
 a similar question which brought the thirteen origi- 
 nal States together into one nation, under the pres- 
 ent Constitution. At least the first movement to- 
 wards amending the original Articles of Confederation 
 was to give Congress enlarged power over the subject 
 of commerce. Referring to this, Mr. Webster said : — 
 " In the history of the times, it was found that the 
 great topic urged on all occasions, as showing the ne- 
 cessity of a new and different government, was the 
 state of trade and commerce. . . . The New Jersey 
 resolutions complain that the regulation of trade was 
 in the power of the several States, within their spe- 
 cial jurisdiction, in such a degree as to involve many 
 difficulties and embarrassments ; and they express the 
 earnest opinion that the sole and exclusive power of 
 regulating trade with foreign States ought to be in 
 Congress. . . . The entire purpose for which the del- 
 egates assembled at Annapolis wa,s to devise means 
 for the uniform regulation of trade. They found no 
 means but in a general government, and they recom- 
 mended a convention to accomplish that purpose. 
 Over whatever other interests of the country this 
 
218 THE RAILWAY PROBLEM. 
 
 government may diffuse its benefits and its blessings, 
 it will always be true, as a matter of historical fact, 
 that it had its origin in the necessities of commerce, 
 and for its immediate object the relief of those neces- 
 sities by removing their causes and by establishing a 
 uniform and steady system." 
 
 In considering the same matter, a judge of the 
 State of New York used the following expressive lan- 
 guage : — 
 
 " A leading object of the Constitution was to get 
 rid of all conflicting commerciq,l interests, and as. to 
 commerce to effect a union of all the people of all 
 the States, great and small, and make them one peo- 
 ple, one nation, without divided interests, and with- 
 out the power, as States, to produce divided interests 
 or conflicts. This was a leading idea in favor of the 
 Constitution, and to me it has always seemed the most 
 valuable one." 
 
 The power to " regulate commerce among the sev- 
 eral States," which was granted to Congress under 
 the Constitution, must, it is thought, ultimately be 
 construed to mean that " whatever subjects of this 
 power are in their nature national, or admit only of 
 one uniform system or plan of regulation, may justly 
 be said to be of such a nature as to require exclusive 
 legislation by Congress," and that it will be found 
 that the whole trafiBc of railways is of that nature. 
 
 But if it should be found that the Constitution at 
 present does not justify such a construction as would 
 bring the whole subject of railway traflBc within the 
 authority of Congress, the writer ventures the predic- 
 tion that the logic of future events will surely require 
 and produce such amendments as will bring it within 
 the national control. 
 
CHAPTER XXIV. 
 
 CONCLUDING EEFLECTIONS. 
 
 The right of thg government to prescribe rates 
 is now so well established by judicial decisions that 
 it is no longer a question for argument. The duty 
 of the government to fix and maintain the rates is 
 still open. Having discussed the general principles 
 whence it is claimed this duty arises, it is proper to 
 close this volume with a general consideration of the 
 effect which such measures, if adopted, would have 
 in respect to both the owners of railways and the 
 people. 
 
 Governmental control of rates ought to be regarded 
 by owners with favor. At first thought many of the 
 more timid, who have been educated by untruthful 
 representations to believe that the prime purpose of 
 legislation has been to reduce rates, instead of to 
 make them uniform, and thereby prevent unjust dis- 
 criminations, may fear the result of such measures. 
 But a careful study of these laws and an examination 
 of the actions of the State commissioners will dispel 
 such fears. The more extended their knowledge 
 concerning the present system of making rates by 
 traflic managers, based on the sole idea of meeting 
 one another's ever-varying rates, the greater will be 
 the desire of owners to exchange the present for a 
 system of rates made by law, founded upon recog- 
 nized principles, constructed by rule, and supported 
 
220 THE RAILWAY PROBLEM. 
 
 by the strong arm of the government. This opinion 
 is so opposed to the prevailing notions that it seems 
 to require support even at the expense of repeating 
 or paraphrasing much that has already been said. 
 
 The position of the traffic manager, who is charged 
 with the responsibility of rates in competitive terri- 
 tory, is one of great difficulty. The functions of his 
 office are exercised under varying conditions. Those 
 conditions may be termed normal under which the 
 manager is free to use his best judgment for the sole 
 good of the company. Those conditions may be called 
 abnormal under which the manager is hampered 
 by influences more or less imperative from Wall 
 Street, which are based on the effect which the con- 
 trolling power in his company may wish to produce 
 for the time being upon the market value of its 
 securities. 
 
 Under normal conditions the manager conceives it 
 to be the duty of the office to secure the largest im- 
 mediate income without reference to the future. In 
 pursuance of this conception of duty, the highest ob- 
 tainable rate is charged, at non-competitive points 
 and upon small and chance shipments, while at com- 
 petitive stations and upon large shipments lower 
 rates and important concessions are readily granted. 
 It may be said that rates for large shipments are 
 made by auction, wherein the shipper is the auction- 
 eer and the traffic officials of the different companies 
 are the bidders. The auctioneer is usually a mer- 
 chant well skilled in the art of making bargains. He 
 is personally interested in the results, and has a de- 
 cided advantage inasmuch as he has knowledge of all 
 the bids, while the poor traffic agent knows nothing , 
 of what his competitor has bid, or even who his com- 
 
CONCLUDING REFLECTIONS. 221 
 
 petitor for the time may be. Indeed, it is not im- 
 possible that he may be called upon to make a bid 
 against the offer of another agent of his own com- 
 pany. The auctioneer, if asked, is not obliged to tell 
 from whom he has already received bids, or the 
 amount of such bids, and if he does answer he is not 
 compelled to be truthful. It is not usually considered 
 good policy to ask such questions, for having once 
 committed himself to certain statements, the auction- 
 eer is bound to give the shipment to another line, 
 unless a better offer is made, or confess himself a 
 liar. Under these circumstances, with ever-varying 
 detail, the traffic agents bargain from day to day 
 with their customers. To name the tariff rates to a 
 large shipper is equivalent to saying his shipments 
 are not desired, but just what rates to quote is a 
 question of the greatest difficulty. The practical re- 
 sult of these unequal contests is that such shippers 
 are allowed to make their own rate. The rates thus 
 obtained, although supposed to be secret, soon be- 
 come known to other customers and to competitive 
 lines, and henceforth are the standard, until in a short 
 time they are slightly shaded by some rival company, 
 under the pretext of " meeting the rates made by its 
 competitors." And it is by this process of attrition 
 between the agents of the various companies that the 
 average rates have been reduced to the present un- 
 profitable level. 
 
 But says the intelligent merchant, " Most of these 
 conditions are common to all transactions of bargain 
 and sale." To a certain extent this proposition must 
 be admitted to be true, except as to the essential dif- 
 ference which has been pointed out in a previous 
 chapter, namely, that for all merchandise there is a 
 
222 THE RAILWAY PROBLEM. 
 
 known cost, while for railway transportation the cost 
 is unknown. 
 
 ■ Generally speaking, if less than cost is accepted 
 for merchandise it incurs a definite certain loss; 
 while to accept a bid for transportation very much 
 below the supposed but unknown cost, provided it 
 is above the mere cost of hauling, would contribute 
 something, although less than it ought, towards the 
 fixed expenses. It is upon this principle that the 
 traffic manager feels justified in taking " what he 
 can get ; " and as an isolated transaction, without con- 
 sidering its influence upon the action of others or its 
 effect upon the business of the country or the future, 
 it would seem to be justified. As long as this sys- 
 tem is in vogue, since traffic managers are human, 
 owners must expect that they will make mistakes, 
 and sometimes agree to rates lower than were really 
 necessary to secure the shipments. 
 
 When the subject is looked at from all points, it 
 will have to be admitted that the fault is not with the 
 traffic agents, but in the system. By this process of 
 gradually wearing away the rates, as by friction, they 
 have reached such an unprofitable level that owners 
 now stand on the brink where it is easy to see ruin 
 if these methods are continued. But the companies 
 seem powerless. For a quarter of a century they 
 have been attempting, by agreements between them- 
 selves, to make and maintain uniform and stable rates. 
 But as such contracts are not recognized as binding 
 by the law, they have rested entirely on the good 
 faith of each company, and to a great extent upon 
 the capacity as well as good faith of each of the 
 traffic officials and employees. In the past they have 
 not been efficacious, and, judging from experience 
 
CONCLUDINO REFLECTIONS. 223 
 
 and from our knowledge of the foibles of human na- 
 ture, it is too much to hope for any suflBcient pro- 
 tection to the rights of owners growing out of such 
 agreements in the future. 
 
 Their alternative protection is the strong arm of 
 the law. Let the law name the rates, and let the 
 law maintain and protect their integrity. 
 
 Having examined the proposition in reference to 
 the interests of the owners of railways, it should now 
 be considered from the point of view of that more 
 numerous section of the general public who are not 
 owners, but customers and rate-payers. 
 
 If the opinion of the people may be judged by the 
 general trend of legislation, by the views set forth 
 by the public press, and by the expressions of one's 
 limited circle of acquaintance, the general proposi- 
 tion would receive the assent of a very large major- 
 ity. But when it came to be carefully analyzed, and 
 the people realized that government control of rates 
 would apparently work destruction to that competi- 
 tion which for a generation has been held up to them 
 as the defense against extortion on the part of the 
 railway companies and the active cause of reductions 
 in rates, it may be assumed that some at least would 
 hesitate. This apparent objection opens up a wide 
 field of thought which the limits of this chapter will 
 not admit of considering in detail. 
 
 There have been legitimate and illegitimate reduc- 
 tions in rates. Those reductions which may be called 
 legitimate have resulted from causes which have re- 
 duced the cost of transportation, inventions such as 
 the Bessemer process of making steel rails, increased 
 capital invested in improving the permanent way and 
 the rolling stock, as well as the increased volume of 
 
224 THE RAILWAY PROBLEM. 
 
 business. All such reductions should inure to the 
 equal or proportionate benefit of all, and would do so 
 but for the illegitimate reductions growing out of 
 competition, which have compelled the companies to 
 give the larger proportion to the big shipper, while 
 holding the rates as high as possible for the small 
 shipper. Reductions in rates which result from tak- 
 ing from the many and giving to the few, although 
 in the process more is given than taken, resulting in 
 an actual reduction of the average rate, cannot be 
 called legitimate. 
 
 Almost all the marvelous reductions in the aver- 
 age rates during the last ten or fifteen years have 
 been legitimate, arising from lessened cost. The fact 
 is, that the margin of profit in railway transpor- 
 tation, notwithstanding the general opinion to the 
 contrary, is so very narrow that a slight illegitimate 
 reduction, if continued, soon results in financial dis- 
 aster. Neither the general public nor the ordinary 
 investors, who are accustomed to see some rates 
 fluctuate from week to week to the extent of ten, 
 fifteen, or even fifty per cent, can realize the narrow- 
 ness of this margin. For example, a decrease of an 
 average of only one mill per ton per mile on any of 
 the large Western systems is equivalent to a dividend 
 on its stock. Hence it must be evident that, after 
 all the reduction owing to lessened cost has been 
 made which can be, there is little chance left for so- 
 called competition to effect still further reductions,, 
 except by raising one rate while dropping another, 
 which results in discrimination. Competition can- 
 not reduce cost. 
 
 Competition may for a short period illegitimately 
 reduce rates, but its great province is to produce un- 
 
CONCLUDING REFLECTIONS. 225 
 
 just discrimination, taking by stealth what rightfully 
 belongs to one and giving it to another. It takes 
 from the poor and gives to the rich ; from the many 
 and gives to the few. It does not permit men in the 
 ordinary walks of life fairly to compete with one 
 another. At the command of the favorite it drives 
 multitudes of men from their chosen vocations and 
 independent business pursuits, thereafter to occupy 
 positions as clerks and employees; while the favor- 
 ite becomes rich, they become poor. It affects the 
 value of real estate, making that of farms and village 
 property in non-competitive districts less, and in- 
 creasing that of competitive districts. It affects the 
 value of personal property, making it greater in the 
 hands of large shippers, who are granted cut rates, 
 than in the hands of small shippers, who are not thus 
 favored. It forces population along with manufac- 
 tories and commerce to the large cities. Instead of 
 allowing the artisan to live in the smaller town, 
 where it might be possible for him to own his home, 
 and with moderate expenses rear his family in the 
 quiet and amid the virtues of the country, it compels 
 him to live in the vicious tenement house of the 
 crowded city. His children have reeking pavements 
 instead of green fields for a playground, and their 
 ears are greeted with coarse profanity and vulgar 
 language instead of the songs of birds. The air is 
 laden with the disgusting odors of the gin shop instead 
 of the perfume of clover blossoms, and instead of 
 the peaceful scenes of nature they are made familiar 
 with vulgarity, brutality, and crime. By congesting 
 population it indirectly promotes disease, ignorance, 
 and crime. It destroys independent occupations and 
 forces the whole people into classes : employers and 
 
226 THE RAILWAY PROBLEM. 
 
 employees, masters and servants, autocrats and me- 
 nials akin to slaves. Why should the people longer 
 worship the monstrosity of discrimination, because 
 perchance it has been miscalled competition, or mourn 
 over its destruction ? 
 
 But there is another phase to this question. As 
 long as men are selfish, it may be expected that some, 
 regarding only their own supposed interests and re- 
 membering their former real and fancied wrongs, 
 will say, " If this competition is ruining the railway 
 companies, let it ! What care we whether the owners 
 get an income from their investments? They are 
 rich. They have able men to watch and manage 
 their interests. They have never shown mercy. It 
 is a fight between themselves. What they lose the 
 people gain. Why should we desire the government 
 to interfere?" The answer is that justice requires 
 that the owners of railways should have a fair return 
 for the use of their invested capital, if there is suflB.- 
 cient traffic to produce the necessary revenue through 
 the collection of reasonable tolls. 
 
 But, regardless of the principles of equity, selfish- 
 ness demands that the people should protect these in- 
 terests. If it is a law that in the long run the con- 
 sumer must pay the cost of all he consumes, then it is 
 clear that the theoi'y that " what the owners of rail- 
 ways lose the people gain " is not entirely true. The 
 warfare now being carried on between the companies, 
 from which the people are apparently profiting by 
 reason of too low rates, will not always last. It will 
 come to an end, if not by government control, per- 
 haps by consolidations. Then the consolidated com- 
 pany without government control will be in con- 
 dition to recoup all present losses. Then the men 
 
CONCLUDING REFLECTIONS. 227 
 
 who deny governmental protection to the companies 
 will seek it for themselves. Consolidation is being 
 much thought of and discussed. It seems to be in 
 the air, and probably many combinations will be con- 
 summated in the near future. The laws now forbid 
 the consolidation of competitive lines, and no doubt it 
 will be a long time before there will be a change in 
 this respect, although thereby many economies in 
 operating could be effected to the advantage of the 
 public. But they do not and cannot forbid a common 
 individual ownership which, for the purpose of ad- 
 vancing rates so as to recoup present losses and insure 
 future dividends, would be as effectual as technical 
 and legal consolidation. Without governmental con- 
 trol of rates, either one or the other method of com- 
 mon ownership is inevitable. With governmental con- 
 trol, the people have little to fear from legal consoli- 
 dation, but much from the absorption of the holdings 
 of railway securities into a few hands. Now they are 
 scattered. The stocks and bonds of American rail- 
 ways are owned by hundreds of thousands of persons. 
 Widows, orphans, trustees for estates, savings banks, 
 men and women too old to work, and all classes and 
 conditions have their savings invested in them, and 
 look to them for an income on which to live. As the 
 stocks control, and as the matter under consideration 
 is the control of these properties, the value of the 
 bonds may be eliminated. The market value of 
 stocks depends upon the income they produce. If it 
 is six per cent per annum, their market value is par 
 or more. As the income decreases their value de- 
 creases, and finally, should the income cease, their 
 value would be reduced to an expectation merely. 
 Now when danger approaches, the professionals, 
 
228 THE RAILWAY PROBLEM. 
 
 who have avenues of advance information, sell early 
 while the price is high, and not only sell, but usually 
 sell " short." But it is notorious that the multitude 
 of small investors are always " Bulls " when they 
 should be " Bears," and vic^ versa. As the price goes 
 down, they hold on till they can hold no longer, and 
 generally at the lowest price they sell. Who buys? 
 •The only men who can, the wise ones who sniffed the 
 danger from afar, sold early, and now ha;ve money to 
 buy at bottom prices. 
 
 In a general collapse, what an opportunity ! In 
 the wreck of prices, a comparatively small amount 
 of money will buy the control of half a dozen of the 
 largest systems. A few men can do it, and on the 
 ruins of the fortunes of hundreds of thousands of 
 small investors lay the sure foundations of the enor- 
 mous wealth of the future American billionaires. 
 Fifty years ago the American millionaires were as 
 yet unknown, and only dreamed of. It was then the 
 pride of America that her citizens were possessed of 
 independent livelihoods ; that it was a land of homes 
 and of substantial equality ; that there were no privi- 
 leged classes, — none very rich and few very poor. 
 Now it has been estimated that, with a population 
 of over sixty-five million people, one half of all the 
 wealth of the nation is concentrated in the hands of 
 forty thousand families, and that three fourths of it 
 " is in the possession of fewer than two hundred and 
 fifty thousand families," while there are seventy-five 
 estates valued at an average of $35,000,000 each. 
 One individual is reputed to be worth more than 
 $200,000,000, and the income of another is estimated 
 at 11,500,000 per month. Such statements appear- 
 ing in public prints over respectable signatures, 
 
CONCLUDING REFLECTIONS. 229 
 
 although they may not be strictly accurate in de- 
 tail, necessarily challenge thoughtful consideration. 
 Whence and how could a single man, in one lifetime, 
 accumulate $200,000,000, or another, poor when a 
 boy, at the age of fifty have acquired an income of 
 118,000,000 per annum ? 
 
 It is understood that the first $150,000,000 fortune 
 was founded upon the ruins of a line of insignificant 
 railways, which were bought for a bagatelle, and, be- 
 ing put together and managed with consummate ge- 
 nius, became a great trunk line ; and that the largest 
 mercantile fortunes have resulted from monopolies in 
 trade, born and nurtured by discriminations on the 
 part of railways in respect to rates. 
 
 From these examples, let the sixty-five millions of 
 American citizens who together own one quarter of 
 the wealth of the nation, while the remaining three 
 quarters are owned by less than one million of their 
 fellow-citizens, be assured that with the destruction 
 of the small investments in railway securities there 
 will appear the billionaire. Will an army of paupers 
 follow in his train ? 
 
APPENDIX. 
 
 EARNINGS AND RATES OF REPRESENTATIVE 
 ROADS, ILLUSTRATED BY DIAGRAMS AND LEGAL 
 DECISIONS. 
 
 What does "a mill a ton per mile " mean ? 
 
 It means to the Per annum 
 
 Chicago & Northwestern Railway Co. . . . $1,804,701 
 
 Chicago, Milwaukee & St. Paul Co 1,620,923 
 
 Illinois Central Co 963,929 
 
 Chicago & Alton Co 537,301 
 
 New York Central & Hudson Railway Co. . . 2,775,582 
 
 Lake Shore & Michigan Southern Co. ... 1,859,009 
 
 Pennsylvania Railway (Penn. Div. alone) . . 4,383,008 
 
 Pittsburgh, Fort Wayne & Chicago Co. . . . 1,087,100 
 
 To pay six per cent dividends on the Chicago & North- 
 western common stock requires $1,881,894; on the Chi- 
 cago, Milwaukee & St. Paul preferred stock, $1,296,654 ; 
 on the Illinois Central stock, $2,400,000 ; and on Chicago & 
 Alton common stock, $846,900. 
 
 A mill a ton a mile is a dividend to the two first, and two 
 mills a dividend to the two next mentioned companies. A 
 loss of another mill in the average rates is a loss of divi- 
 dends to the two first mentioned, and of two mills a like 
 loss to the two next mentioned companies. 
 
 A mill a ton per mile is equal to one fourth of a cent per 
 hundredweight for fifty miles haul, one half a cent per hun- 
 dredweight for one hundred miles, two cents for four hun- 
 dred miles, and two and a half cents per hundredweight for 
 five hundred miles. 
 
232 THE RAILWAY PROBLEM. 
 
 How many traffic officials, when cutting rates, realize the 
 meaning of " a mill a ton per mile ? " 
 
 Having ascertained the meaning of "a mill a ton per 
 mile," it will be interesting to examine the record of the 
 rates upon four important Eastern and a like number of 
 Western lines. Following this is a diagram which presents 
 this record to the eye at a glance. The record of one of 
 the Eastern lines extends back to 1855, and of one of the 
 "Western to 1865. The astonishing and apparently eccen- 
 tric movements of the average rates on the Eastern lines, 
 from 1855 to 1879, need explanation. From 1855 to 1861, 
 the beginning of the war, their course was downward ; from 
 1861 to 1865, the close of the war, they shot upward like 
 a rocket. From 1865 they fell rapidly. In 1870 they had 
 reached the level of 1861. This movement may be ascribed 
 to conditions incident to the war, among which may be 
 mentioned increased volume of business, and a currency 
 which first depreciated and then appreciated. From 1870 
 to 1879 their course was uniformly downward, at the rate 
 of about " a mill a ton per mile " per annum ; ten mills 
 in ten years. It is evident that if " a mill means a divi- 
 dend," there must have been causes at work reducing cost 
 of operating proportionately, or bankruptcy would have 
 ensued. 
 
 What were these causes ? (1.) Increased tonnages. The 
 N. Y. C. & H. R. Railway's ton-miles increased from 769,- 
 087,777 in 1870 to 2,295,827,387 in 1879. (2.) Substitu- 
 tion of steel for iron rails, and constantly decreasing price 
 of rails, etc. (3.) Increased load of trains, owing to larger 
 cars and locomotives. On the Lake Shore Road, in 1870, 
 one hundred and thirty-seven tons was an average train 
 load ; in 1879 the load had increased to two hundred and 
 thirteen tons per train. 
 
 In 1879 these Eastern lines seem to have reached their 
 minimum cost of operation, and the minimum rates of 
 safety. In the ten years since that date which are covered 
 by the record, the extreme range of rates has been one mill 
 
APPENDIX. 233 
 
 above to one mill below the rate of 1879. In 1883 it went 
 one mill above, and the roads earned practically two divi- 
 dends ; in 1885 it dropped one mill below, and they earned 
 substantially no dividends. So it is evident that " a mill a 
 ton per mile " means a dividend on these roads, and the 
 causes which steadily reduced operating expenses from 
 1870 to 1879 have ceased to be effective during the last ten 
 years. 
 
 Turning to charts Nos. 3, 4, and 5 (following), it will be 
 seen that the causes which reduced operating expenses of 
 the Eastern roads between 1870 and 1879 continued effec- 
 tive on the Western lines until 1886, seven years later than 
 on the Eastern lines. In 1886 the expenses took an up- 
 ward turn, but the rates continued downward two years 
 longer till 1888. Tonnage fell off in 1889, while the rate 
 slightly increased ; and there was a marked increase in ton- 
 nage in 1890, while the rate fell off. Evidently the West- 
 ern roads reached the danger line of rates in 1887, and dis- 
 aster followed the reduction of the next year. And another 
 " mill a ton per mUe " reduction means ruin to all dividends 
 to even the best roads, until there is a material increase of 
 tonnage. 
 
 Will traffic men and the public make a note of this ? 
 
 It has been customary to blame legislation for the rapid 
 fall in rates. Do these records present any proof that legis- 
 lation has reduced rates ? The first so-called Granger legis- 
 lation was in 1872. The previous rapid decline in rates 
 seemed to have been checked in that year, and the rates in 
 1873 were higher. Following the advent of the Interstate 
 Commerce Law, and the much abused Iowa law of 1888,^ 
 the decline in rates was checked, and a raise followed in 
 1889. 
 
 1 The year 1888 of the record covers the time from July 1, 1887, to 
 June 30, 1888. The Interstate Commerce Law went into effect in 
 April, 1887, and of course its effect upon rates, if any, would show in 
 the fiscal year 1888. 
 
234 THE RAILWAY PROBLEM. 
 
 Diagram No. 2 shows the record of passenger rates on 
 the same lines east and west of Chicago. 
 
 By referring to diagrams numbers 3, 4, and 5, the general 
 uniformity as to the different lines will be recognized. 
 These records only go back to 1880, the statistics of that 
 year being used as a basis for comparison. The data (1880) 
 being one hundred per cent, the statistics of subsequent 
 years are represented by a percentage above and below. 
 All factors are reduced to the unit of a mile. 
 
 Gross earnings are afEected by increase of tonnage, and 
 by decrease in rates, the increase in volume tending to make 
 them higher, the decrease in rates tending to make them 
 lower. 
 
 Under such circumstances, whether gross earnings in- 
 crease or decrease depends upon the relative rate of in- 
 crease and decrease of these two opposing forces. It is not 
 so with the expenses. If tonnage increases or decreases, 
 expenses wiU increase or decrease (not necessarily in the 
 same ratio) regardless of the rates, that is, under ^ven 
 conditions it costs as much to haul a ton a mile if the rate 
 is one cent as though it were two cents, and under the same 
 conditions it costs more to haul two hundred than one hun- 
 dred tons. These propositions would seem self-evident, and 
 in respect to earnings the records, as shown on the dia- 
 grams, are in accordance therewith. 
 
 As to operating expenses, the above proposition seems to 
 hold good since 1886. But prior to that time the line of 
 expenses is eccentric, seeming to be controlled by unseen 
 influences. 
 
 It will be observed that in some cases the tonnage and 
 passengers, per mile of road, have increased since 1880, 
 while the operating expenses have decreased. The decrease 
 in expenses was continuous from 1880 to 1886 ; since that 
 date, as has been said, the expenses have increased as the 
 volume of business increased. This is illustrated by the fol- 
 lowing extract from one of the diagrams : — 
 
APPENDIX. 
 
 235 
 
 150 
 
 Ton - m 1 1 e 6 per mile 
 
 Passenger - miles 
 ~ per mile 
 
 Operating Lxpenees 
 per mild 
 
 a 
 
 nODCO 00O9 cDooeoooov^ 
 
 Years 
 
 It would appear that from 1880 to 1886, by reason of 
 the economy due to substitution of steel for iron rails, and 
 the introduction of larger cars and locomotives, and possibly 
 by the aid of the auditor in book-keeping, the operating de- 
 partments were able to reduce expenses nearly as fast as 
 the traffic departments reduced rates. 
 
 But the operating department seems to have exhausted 
 its ability in this direction in 1886. This is apparent if the 
 several diagrams in respect to volume of business and ex- 
 penses be recast on the basis of 1886 as an initial point. It 
 wiU then be seen that, since that date, as business has in- 
 creased expenses have increased. (See diagram, p. 236.) 
 
 Will expenses relatively increase or decrease in the fu- 
 ture ? They will probably increase. The substitution of 
 steel for iron rails, and the introduction of improved cars 
 and locomotives, began in the " seventies." The wear and 
 tear has been going on, but as yet have only appeared to a 
 limited extent in the accounts of expenses. These items 
 will soon become factors, and the expense accounts of the 
 next few years will have to bear not only the current wear 
 but the accumulations of several years past. 
 
236 
 
 THE RAILWAY PROBLEM. 
 
 
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 O I. 
 
 1 
 
 en vu 
 
 g 
 
 125 
 
 100 
 
 75 
 
 
 
 
 ^^" 
 
 
 
 
 y 
 
 
 h 
 
 ^. 
 
 / 
 
 .</ 
 
 \V 
 
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 ^ 
 
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 Operotii^g Expenses 
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 Passen gar - nn i tes 
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 Years 
 
 These data indicate that the proper rates for the Western 
 roads, with the present volume of business, were reached in 
 1886, and that subsequent reductions are illegitimate except 
 to the limited extent that they may have been justified by 
 increased tonnage. 
 
 IT IS THE DUTY OF THE SOVEREIGN TO PROVIDE 
 HIGHWAYS. 
 
 In Vattel's " Law of Nations," book i., chapter ix., this is 
 announced as a sound principle of government : — 
 
 " Sec. 100. The utility of highways, bridges, canals, and 
 in a word of all safe and commodious ways of communica- 
 tion, cannot be doubted. They facilitate the trade between 
 one place and another, and render the conveyance of mer- 
 chandise less expensive, as well as more certain and easy. 
 The merchants are enabled to sell at a better price and ob- 
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 Statistics per Mile oF Rood in comparison with the Year 1880 
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APPENDIX. 237 
 
 whose merchandise is carried through the country, and who 
 diffuse wealth in all places through which they pass. 
 
 " Sec. 101. One of the principal things that ought to 
 employ the attention of the government, with respect to the 
 welfare of the republic in general and of trade in particular, 
 must relate to the highways, canals, etc., in which nothing 
 ought to be neglected to render them safe and commodious. 
 
 " Sec. 102. The whole nation ought, doubtless, to con- 
 tribute to such useful undertakings. 
 
 " Sec. 103. The construction and preservation of all 
 these works being attended with great expense, the nation 
 may very justly oblige all those to contribute to them who 
 receive advantage from their use. This is the legitimate 
 origin of the right of toll." 
 
 In case of Bloodgood v. Mohawk & Hudson E. E. Com- 
 pany, 18 Wendell's New York Eeports, page 46, the 
 court quotes approvingly the above sections from Vattel 
 and says : — 
 
 " These propositions have the ready assent of every en- 
 lightened individual in every country, and under any and 
 every kind of government. In the days of Vattel there 
 were no railroads, and in all probability the obligation of 
 government to construct railroads in no measure entered 
 into his consideration when inditing those general proposi- 
 tions ; they nevertheless come within the spirit of national 
 obligation in the most emphatic manner, as the government 
 are thereby most effectually enabled to fulfill the just expec- 
 tations and .serve the most substantial interests of the com- 
 munity. The government have not only the power, but that 
 it is most emphatically their duty and interest to construct 
 railroads, where the public interest and convenience demand 
 them, cannot admit of a doubt ; for such purpose they are 
 . . . justified in exacting toll from those who travel on 
 them as a means to reimburse the state for the expense of 
 their construction and reparation." 
 
 Following, adopting, and extending the principle laid 
 down in Vattel above cited, the Supreme Court of Minne- 
 
238 THE RAILWAY PROBLEM. 
 
 sota, in case of Blake v. Winona & St. Peter R. R. Com- 
 pany, 19th Minnesota Reports, page 369, in an opinion by 
 Ripley, Chief Justice, says : — 
 
 " Inasmuch as it is the duty of the government, with re- 
 spect to the welfare of the public in general and of trade in 
 particular, to provide safe and commodious ways of com- 
 munication, whence flows the right of the state to oblige 
 those, who make use of the ways it provides, to contribute 
 to the expense of making and maintaining them, i. e., the 
 right to levy tolls." 
 
 Also, in case of Davidson v. County of Ramsey, 18 Min- 
 nesota Reports, page 436, Justice Berry, who delivered the 
 opinion of the court, on page 439 says : — 
 
 " To provide the public with necessary and convenient 
 ways of travel and transportation is an essentially public 
 function, which may be performed by the state itself, or 
 may, in the discretion of the government, be devolved upon 
 a private corporation or an individual, and that in either 
 case the function retains its public character." 
 
 In Pennsylvania, a like principle is announced in case of 
 Sharpless v. The Mayor of Philadelphia, in 21 Pennsylvania 
 State Reports, page 169. Chief Justice Black, in his opin- 
 ion, uses this language : — 
 
 " It is a grave error to suppose that the duty of the 
 state stops with the establishment of those institutions 
 which are necessary to the existence of government. . . . 
 Canals, bridges, roads, and other artificial means of pas- 
 sage and transportation from one part of the country to the 
 other, have been made by the sovereign power, and at pub- 
 lic expense, in every civUized state of ancient and modern 
 times." 
 
 In " Redfield on the Law of Railways,'' sixth edition, 
 chapter v., it is laid down as an undisputed principle, 
 that '• the furnishing of means of communication between 
 difEerent parts of the state is a prerogative right vested in 
 the sovereign, and one which no subject, without special 
 leave of the state, can exercise." 
 
APPENDIX. 239 
 
 RAILROADS ARE PUBLIC HIGHWAYS. 
 
 The case of Sharpless v. The Mayor of Philadelphia, 21 
 Pennsylvania State Reports, page 169, was a bill in chan- 
 cery filed to enjoin subscription by city of Philadelphia to 
 stock of the Philadelphia, Easton & Water Gap Railroad 
 Company. In the opinion of the court. Chief Justice Black 
 
 " A railroad is a public highway for the public benefit, 
 and right of the corporation to exact a uniform, reasonable, 
 stipulated toll from those who pass over it, does not make 
 its main use a private one. The public have an interest in 
 such a road when it belongs to a corporation as clearly as 
 they would if it were free, or as if the toUs were payable to 
 the state." 
 
 This language of the Pennsylvania court is quoted and 
 approved in case of Davidson v. The County of Ramsey, 
 18 Minnesota Reports, page 436. The same case cites and 
 approves the language of Justice Clifford in case of Rogers 
 V. Burlington, 70 U. S. Supreme Court Reports (3 Wallace), 
 page 654: — 
 
 " Railroads, as a matter of usage founded on experience, 
 are considered by the courts in the nature of improved high- 
 ways." 
 
 In Davidson v. County of Ramsey, Justice Berry, in de- 
 livering the opinion of the court, says : — 
 
 " In the eye of the law, railways are modern public high- 
 ways ; and while railway corporations, are private corpora- 
 tions, they are created to serve distinct public uses." 
 
 Rorer on Raiboads, vol. i., chapter i., section 1, states the 
 law in the following language : — 
 
 " Although railroads, owned and operated by private cor- 
 porations under charters from the state, or under articles 
 of incorporation gotten up under general incorporation laws 
 providing therefor, . . . are not public highways within 
 the ordinary meaning of the term, yet in a legal sense they 
 are public highways of an improved kind ; . . . they are to 
 
240 THE RAILWAY PROBLEM. 
 
 be regarded as public works, intended to promote public 
 accommodation, and are alike entitled to legislative consid- 
 eration and respect with turnpikes, highways, and other 
 public works." 
 
 The Supreme Court of Massachusetts, in case of Worces- 
 ter V. Western Bailroad Company, 4 Metcalf, 564, Chief 
 Justice Shaw, in delivering the opinion of the court, asserts 
 this doctrine : — 
 
 " It is manifest that the establishment of that great thor- 
 oughfare is regarded as a public work, established by pub- 
 lic authority, intended for the public use and benefit, the 
 use of which is secured to the whole community, and con- 
 stitutes, therefore, like a canal, turnpike or highway, a pub- 
 lic easement. The real and personal property necessary 
 to the establishment and management of the railroad is 
 vested in the corporation, yet it is in trust for the public." 
 " The company have not the general power of disposal ioa 
 cident to the absolute right of property ; they are obliged 
 to use it in a particular manner, and for the accomplishment 
 of a well-defined public object." 
 
 The United States Supreme Court, in Alcott v. Super- 
 visors, U. S. Supreme Court Reports (16 Wallace), page 
 678, through Justice Strong, who delivered the opinion. 
 
 " That railroads, though constructed by private corpora- 
 tions and owned by them, are public highways, has been 
 the doctrine of nearly all the courts since such conveniences 
 for passage and transportation have had any existence." 
 
 The United States Circuit Court, in Bonaparte v. Camden 
 & Amboy Railroad Company, 1 Baldwin (U. S. Circuit 
 Ct. Reports), page 223, Justice Baldwin presiding, says : — 
 
 " A road or canal, constructed by the public or a corpora- 
 tion, is a public highway for the public benefit, if the public 
 have a right of passage thereon by paying a reasonable, 
 stipulated, uniform toll." " If the public can pass and re- 
 pass and enjoy its benefits by right, it matters not whether 
 the toll is due to the public or a private corporation." 
 
APPENDIX. 241 
 
 Railroads are recognized as public highways in case of 
 Boyle V. Philadelphia & Reading Railroad, 64 Pennsyl- 
 vania State Reports, page 312. 
 
 WHOEVER BUILDS OR OPERATES A RAILROAD 
 PERFORMS THE FUNCTIONS OF THE GOVERN- 
 MENT UNDER A LICENSE OR AUTHORITY FROM 
 THE GOVERNMENT. 
 
 This doctrine was stated in the following language by the 
 Supreme Court of Minnesota in case of Blake v. Winona 
 & St. Peter Railroad Company, 19 Minnesota Reports, 
 page 369 : — 
 
 " Inasmuch as it is the duty of the government, with re- 
 spect to the welfare of the public in general and of trade 
 in particular, to, provide safe and commodious ways of com- 
 munication, ... it follows that the right to make roads 
 and levy toU is a prerogative of sovereignty, and, in the 
 hands of a subject, is a franchise, — a privilege or immu- 
 nity of a public nature, which cannot~be legally exercised 
 without legislative authority. Nor is there now any ques- 
 tion, at least in this court, that the right to make and main- 
 tain a railway, and take tolls or fares, is such a privilege or 
 immunity, for the same reason that the right to build an 
 ordinary road, and levy tolls thereon, is, namely, that a rail- 
 road is but an imprtwed modern highway, one which it is 
 the duty and interest of the government to construct, where 
 the public interest and convenience demand it." 
 
 In the same case, page 370, the court declares : " TMs 
 franchise of the defendant, then, is a privilege of the sov- 
 ereign in the hands of the subject ; " that the principle is 
 the same whether the subject be an artificial being or a nat- 
 ural person; that "this defendant is as entirely subject 
 to legislative control as such natural person would have 
 been." • 
 
 This doctrine was announced and settled in Vermont in 
 case of State v. Boston, Concord & Montreal Railroad, 
 where a writ of quo warranto was asked against the raU- 
 
242 THE RAILWAY PROBLEM. 
 
 road company to show by what authority it, a New Hamp- 
 shire corporation, exercised franchises in Vermont. Chief 
 Justice Bedfield in the opinion, page 442, says : — 
 
 " The right to build and run a railroad, and take tolls or 
 fares, is a franchise of the prerogative character, which no 
 person can legally exercise without some special grant of 
 the legislature." And on page 444 : " They could not com- 
 pel the land-owners to yield them the right of way, or even 
 space to sustain the western abutment of their bridge, with- 
 out a grant from the legislature of the prerogative power 
 to exercise the right of eminent domain over lands in this 
 State." 
 
 THE REVENUES COLLECTED BY RAILROADS ARE 
 TOLLS, AND TOLLS ARE TAXES. 
 
 That the revenues they collect are tolls, seems established 
 by the uniform holdings of the following authorities : — 
 
 Bouvier (Law Dictionary) defines " toll " as " a sum of 
 money for the use of something ; generally applied to the 
 consideration which is paid for the use of a road, bridge, or 
 the like of a public nature." 
 
 Abbott (Law Dictionary) says : " ToU is now properly 
 applied to the charges which canal and railroad companies 
 require for the transportation of goods." 
 
 In Webster's Dictionary " toll " is defined as " a tax paid 
 for some liberty or privilege, particularly for the privilege 
 of passing over a bridge or on a highway." 
 
 In Minnesota this seems well settled in case of Blake 
 V. Winona & St. Peter Baiboad Company, 19 Minnesota 
 Reports, page 368, which was a suit brought under act of 
 legislature of 1871 establishing maximum rates. There, 
 Chief Justice Ripley, in delivering the opinion of the court, 
 speaking of the acts of the legislature incorporating the 
 defendant, says : " By none of them is any authority to 
 charge any toll, for freight or passengers carried over its 
 road, expressly granted to defendant ; " and, speaking of 
 the act under which suit was brought : " The act in ques- 
 
APPENDIX. 243 
 
 tion fixes a maximum toll for the transportation of such 
 goods . . . over defeudants' road." And: "The right to 
 demand and receive some toll is, we assume, one of its es- 
 sential franchises." And again : " The right to make roads 
 and levy toll is a prerogative of sovereignty, and in the 
 hands of a suhject is a franchise, a privilege or immunity of 
 a public nature, which cannot be legally exercised without 
 legislative authority. Nor is there now any question, at 
 least in this court, that the right to make and maintain a 
 railway, and take tolls or fares, is such a privilege or immu- 
 nity, for the same reason that the right to build an ordinary 
 road and levy tolls thereon is, namely, that a railroad is but 
 an improved modern highway, one which it is the duty and 
 interest of the government to construct." And again : 
 " The contract here, we assume, is that the defendant may 
 take some tolls." " Not any specified rates of toll, nor to 
 take toUs within any designated limits, nor to take reason- 
 able tolls." Substantially the same language as to tolls is 
 used through the entire opinion. 
 
 In New York this doctrine is stated in the early case of 
 Beekman v. Saratoga & Schenectady Railroad Company, 3 
 Paige's Chancery Reports, page 74, which was a case to de- 
 termine whether the railroad could exercise the right of em- 
 inent domain. There Walworth, Chancellor, in stating his 
 opinion, says : " The privilege of making a road and taking 
 tolls thereon is a franchise, as much as the establishment of 
 a ferry or a public wharf, and taking tolls for the use of the 
 same. The public have an interest in the use of the rail- 
 road, and the owners may be prosecuted for the damages 
 sustained if they should refuse to transport an individual or 
 his property, without any reasonable excuse, upon being 
 paid the usual rate of fare. The legislature may also, from 
 time to time, regulate the use of the franchise, and limit the 
 amount of toll which it shall be lawful to take, in the same 
 manner as they may regulate the amount of tolls to be taken 
 at a ferry." 
 
 In the case of People v. City of Brooklyn, 4 New York 
 
244 THE RAILWAY PROBLEM. 
 
 Reports, page 431 , the legality of a special assessment for 
 street paving was in question. Buggies, Justice, in deliver- 
 ing the opinion of the court sustaining the assessment, says : 
 " The same principle of apportionment has been applied to 
 bridges and turnpike roads. The money paid for th^ir 
 construction and maintenance is reimbursed by means of 
 tolls." 
 
 In Hilliard on Taxation, section 18, the principle is laid 
 down, that revenues collected by railroads for their use are 
 recognized as tolls. 
 
 In Wisconsin this doctrine seems to be recognized in case 
 of Whiting v. Sheboygan, etc. Railroad Company, 25 Wis- 
 consin Reports, page 182, which was a suit involving the 
 right of the defendant to exercise the right of eminent do- 
 main. Chief Justice Dixon, in his opinion, says : " As to 
 the use of the land for the purpose of a highway, and the 
 right of the public to pass and repass over it, and enjoy the 
 advantages afforded by it for the transportation of the mer- 
 chandise and productions of the country from one place to 
 another upon the payment of reasonable fare or charges, 
 the corporation may be said to be public, but in all other 
 respects it is private. The public having the power for it- 
 self to condemn the land on payment of just compensation, 
 and to build, equip, and operate the road, and to charge 
 fare or toll for its use, or for the carriage and transportation 
 of passengers and merchandise, that power, subject to the 
 continued enjoyment by. the public, as a matter of right and 
 not by permission of the corporation only, of the same ben- 
 efits of carriage and transportation upon the same condi- 
 tions as to payment of fare and charges, may be exercised 
 in behalf of a private corporation, and so far changes its 
 character." 
 
 The case of Manchester & Lawrence Railroad- v. Fisk, 
 33 New Hampshire Reports, page 305, was a suit to recover 
 for " freighting, carrying, and transportation of divers goods, 
 wares, etc." 
 
 BeU, Justice, in delivering the opinion of the court, says : 
 
APPENDIX. 245 
 
 " In the charter of the railroad, and in the statute of 1852, 
 the charges of the railroad for the conveyance of both 
 freight and passengers are denominated tolls, and, in our 
 view, with entire propriety." 
 
 CONTRA. 
 
 In Boyle v. Philadelphia & Beading Railroad Company, 
 54 Pennsylvania State Reports, page 310, a bill in chancery 
 was filed, charging that the company received greater rates 
 and tolls than was allowed by law, and asked an injunc- 
 tion. 
 
 The charter of the company provided that the toll on any 
 species of property should not exceed an average of four 
 cents per ton per mile, nor upon each passenger an average 
 of two cents per mile. 
 
 The answer denied excess charges of toll, and claimed 
 that the word " toll " applied only to the use of the road for 
 operating motive power and vehicles furnished by the per- 
 sons paying the toll, but admit they have charged extra for 
 supplying motive power, cars, depots, etc. 
 
 In sustaining defendant's position, the judge says : " The 
 legal meaning of the word toll is, and always has been, well 
 defined. It is ' a tribute or custom paid for passage,' not 
 for carriage, — always something taken for a liberty or privi- 
 lege, not for a service ; and such is the common understand- 
 ing of the word. Nobody supposes that tolls taken by a 
 turnpike or canal company include charges for transporta- 
 tion, or that they are anything more than an excise de- 
 manded and paid for the privilege of using the way." 
 
 Cumberland Railroad Company's Appeal, 62 Pennsylvania 
 State Reports, page 228, was a bill filed to enjoin the com- 
 pany from taking excessive tolls. 
 
 The charter of the company authorized it to take four 
 cents per ton per mile for toll, and three cents for transpor- 
 tation. The distinction between tolls and transportation 
 was recognized by the court, and the two subjects of charge 
 held valid. 
 
246 THE RAILWAY PROBLEM. 
 
 In the case of Comblos v. Philadelphia & Beading Bail- 
 road Company, 4 Brewster (Pennsylvania) Beports, page 
 563, an injunction was asked against the railroad company, 
 restraining it from taking toUs and charges in excess of 
 amount allowed by its charter. The court recognized the 
 distinction between a charge for tolls for the use of the 
 track and charges for transportation for use of motive 
 power and cars. 
 
 In Pierce on Bailroads, page 498, the author uses the 
 following language : — 
 
 " The power to take tolls must be expressly given, and 
 when so given is, in case of doubt or ambiguity, to be con- 
 strued favorably to the public. Tolls are to be distinguished 
 from rates of transportation, being a tribute for a privilege, 
 as a right of passage, and not, like freight or fares, a pay- 
 ment for a service." 
 
 In Borer on Bailroads, page 1346, the author says : — 
 
 "Freights, fares, and toEs, are terms which have each 
 their distinctive meaning, not only in common acceptation, 
 but also in legal parlance. The term ' freight,' in its more 
 general sense, is used as well in reference to property car- 
 ried as to the price or compensation to be paid for its car- 
 riage. In the latter and more limited sense of our text, it 
 is our purpose to speak of it here. It is that which is paid, 
 or to be paid, for the service of transporting merchandise 
 and other property. It is contradistinguished from toU in 
 this, that it is not a price paid for the use of the road on 
 which to transport one's own property, but is paid for the 
 service of the company, and carriage of the property by it ; 
 whereas, on the other hand, . . . toll is a tribute or custom 
 paid for passage, not for carriage, — always something tjken 
 for a liberty or privilege, not for a service ; and such is the 
 common understanding of the word." 
 
APPENDIX. 247 
 
 TOLLS ARE TAXES. 
 
 This seems to be supported by the following authorities : 
 Webster defines the word " toU " as " a tax paid for 
 some liberty or privilege, particularly for the privilege of 
 passing over a bridge or on a highway." 
 
 Judge Cooley, in his work on taxation, page 4, says : 
 " The term ' toU,' in its application to the law of taxation, 
 is nearly obsolete. It was formerly applied to duties on im- 
 ports and exports, but ' tolls,' as now understood, are con- 
 fined almost exclusively to charges for permission to pass 
 over a road, bridge, or ferry, owned by the party imposing 
 them." 
 
 In Desty on Taxation, vol. i., page 284, the author in 
 defining " tolls " says : " Tolls are delegated taxation, 
 charged and apportioned only on those who derive a benefit 
 from the original expenditure, and in proportion to that 
 benefit." 
 
 In support of this, the last above named author cites the 
 case of The People v. City of Brooklyn, 4 New York Ee- 
 ports, page 431, where Ruggles, Justice, in his opinion hold- 
 ing a special assessment for street paving valid, says : " Tolls 
 are delegated taxation ; and this taxation is charged and ap- 
 portioned upon those only who derive a benefit from the orig- 
 inal expenditure, and in proportion to that benefit. General 
 taxation upon a town or county for the building of a bridge 
 is valid and lawful, but obviously unjust, because it com- 
 pels one to pay for the benefit of another. Tolls are more 
 equitable, because they equalize the burden with the bene- 
 fit. But this theory of apportioning taxation is not con- 
 fined, in practice to street assessments, and tolls on bridges 
 and turnpike roads. The main revenues of the state, the 
 canal toUs, are regulated upon the same principle ; and as 
 far as the objection to street assessments applies to the prm- 
 ciple of selecting those only who are benefited, and laying' 
 the burden on them in proportion to their respective advan- 
 tages, it applies with equal force to tolls on bridges and 
 
248 THE RAILWAY PROBLEM. 
 
 turnpikes and on the public canals. The difference is only 
 in the mode in which each taxpayer's share of the burden 
 is ascertained." 
 
 CONTRA. 
 
 In case of State v. Haight, 30 New Jersey Beports, page 
 448, Van Dyke, Justice, in his opinion says : " It [the rail- 
 road company] is not a turnpike company in any sense ; 
 nor is it a railroad company, which collects its tolls in differ- 
 ent townships and wards. It cannot be fairly said to collect 
 toUs at all. Tolls are collected from persons who pass or 
 travel by their own conveyances over the roads or bridges 
 of another. Npne do this over the road of the prosecutors. 
 The prosecutors furnish their own conveyances and carry 
 passengers or persons, and charge them a certain price for 
 being carried, known as fare." 
 
 Manistee River Improvement Company v. Louis Sands, 
 53 Michigan Reports, page 593, was a suit to collect tolls 
 fixed by the State Board of Control for floating logs through 
 improved portions of Manistee River. 
 
 Justice Campbell, in the opinion, says : " The contro- 
 versy, therefore, is narrowed down to the inquiry whether 
 the State has a right to provide for improving waters that 
 need improvement, and for allowing tolls to be charged for 
 using the improvements. The idea that tolls for the actual 
 use of passage over land or water highways can be treated 
 as taxes . . . does not appear to us tenable. They are not 
 levied on property or on persons, as their share of any pub- 
 lic burden laid on the people, but they are a fixed compen- 
 sation in lieu of a quantum valet, for the use of that which 
 has value and which is actually used to advantage. They 
 are collected on the same principle as turnpike toUs or_ rail- 
 way or wharfage charges, which no one has ever supposed 
 were public taxes or taxes at all." 
 
 Carondelet Canal and Navigation Company v. Parker, 29 
 Louisiana Annual Reports, page 430, also reported in 
 29 American Reports, page 339, was a suit to recover 
 for toll for schooner passing Bayou St. John. 
 
APPENDIX. 249 
 
 Defendant claimed the State of Louisiana had no right 
 to authorize the collection of toU, on account of prohibition 
 contained in Sec. 10, Article 1, U. S. Constitution, which 
 provides : " No State shall, without the consent of Congress, 
 lay any duty on tonnage ; " and also under the ordinances 
 admitting the State of Louisiana to the Union, which pro- 
 vide that the river Mississippi, and navigable rivers and 
 waters leading into the same or into the Gulf of Mexico, 
 .shall be common highways, free to the use of all, without 
 any ta£, duty, impost, or toll therefor, imposed by the said 
 State. 
 
 De Blanc, Justice, in the opinion of the court, says : 
 "The congressional enactments, we are told, stipulate not 
 merely for the freedom of navigation, but also for an exemp- 
 tion from any impost, tax, or duty. As remarked by Mr. 
 Justice Martin in 11 Martin's (Louisiana) Reports, page 
 309, ' Tax, impost, and duty must be confined to the idea 
 which they commonly present to the mind, — exactions to 
 fill the public coffers for the payment of the public debt and 
 the promotion of the general welfare of the country, not a 
 contribution to pay the expenses of building bridges, erect- 
 ing causeways, or removing obstructions in a watercourse, 
 which are to be paid by the individuals who enjoy the ad- 
 vantages resulting from such labor.' "