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The Relations of the Railroads to the Public Interests—No. 1
POOLlî^G
and
GOVERNMENTAL CONTROL OF
THE RAILROADS.
By JOSBBH NINIMO, JK.
December 26th, 1888.
WASHINGTON :
Gibson Bros., Printers and Bookbinders.
1888.
POOLING, AND GOYERNMENTAL CONTROL
OF THE RAILROADS.
The events of the year just drawing to a close indicate that the
railroad system of the United States is approaching a new stage
fo adjustment to the commercial and industrial interests of the
country. Recently, prominent railroad managers have publicly
advocated the restoration of agreements between rival companies
as to the share of competitive traffic which each shall carry,—the
arrangement commonly known as pooling,—it being held that this is
absolutely necessary, in order to protect the railroads against dif¬
ficulties which environ them, threatening bankruptcy to many, and
tending directly to the demoralization of trade.
Certain railroad presidents of great ability and national reputa¬
tion have also publicly declared that in order to secure the desired
relief they are willing to have the pooling arrangements placed un¬
der the control of the Interstate Commerce Commission. While
I am convinced that agreements between railroads as to the division
of traffic lie at the very foundation of any proper adjustment of
their relations to each other and to the commerce of the country,
and fully concur in the view that railroad federations should be
made the subject of governmental regulation, I regard with
serious apprehension any attempt to place either the railroads or
railroad federations under the control of any agency of the National
Government, in the sense or to the extent, directly or indirectly, of
conferring on such agency the power of rate making. I also stren¬
uously object to conferring upon the Interstate Commerce Com¬
mission, or other governmental agency, any power or duty in the
nature of managing the railroads in contradistinction to regulating
them, in the sense of relieving frictional resistances and correcting
evils arising incidentally in the management of the transportation
interests of the country. These objections have a political, eco¬
nomic, and commercial bearing, and involve considerations of an
elementary character, to which, in a somewhat general way, atten¬
tion is here invited.
THE RAILROAD NOT A FREE HIGHWAY OF COMMERCE, AND THE CONSE¬
QUENCES OF THAT DISABILITY.
The railroad, with all its latent possibilities for good, came into
being with a physical disability which forbade that it should ever be¬
come, in the common-law sense, a free highioay of commerce, viz., its
pathway no wider than the wheel of the vehicle which moves upon
4
it. The economies and all the considerations of safety rendered it
absolutely necessary that the entire traffic and traffic equipment of
each road should be placed under the control of one central man¬
agement. The problem of the age is how to provide against evils
which are the direct consequence of this constrained and highly
artificial mode of transportation.
So long as railroads were in a measure segregated from each
other, the management of their traffic interests involved no serious
difficulty, but M hen they became so widely extended and intimately
interlaced as to form one vast and complex system of transporta¬
tion it was found that there was a missing link in the system
necessary to the preservation of the self-regulative principle of
competition as between rival transportation lines, and at the same
time essential to the exercise of the first law of nature—self-
preservation. At last it was realized, from the lessons of a hard and
dear-bought experience, that where a number of railroads engage
in competitive traffic they must agree among themselves as to the
share of such traffic which each shall carry, or plunge into a
struggle unrestrained by the caution which attaches to ownership or
by personal responsibility for results. Such struggles are direct and
unavoidable incidents of the single corporate management of the
entire traffic of railroads, and appear to be an inevitable corollary
of the constitutional infirmity of the railroad, which forbids that
in ihe technical sense it shall be a free highway of commerce.
This is an elementary and generally recognized fact of railroad
economics, and it would hardly have been noticed here but for
the fact that within the last thirty days the Chancellor of a State
has, in the delivery of an important opinion, expressed his belief
that the railroads of the country will become free highways, " over
which any man owning an engine and cars might travel, carrying
either passengers or freights."
The difficulties imposed by the constitutional infirmity of the
railroad to which reference has been made were greatly enhanced
by the fact that railroad extension had created ten thousand ele¬
ments of competition in trade, the general tendency being toward
a parity of values. The result of this was that the power of de¬
termining rates was continually slipping from the hands of rail¬
road managers and being assumed by shippers. The shippers
were not slow in appreciating their advantage or in devising
schemes to baffie the companies.
The struggles between rival lines also opened wide the
door to the railroad wrecker and exploiter in railroad secui'ities,
and resulted in the absorption not only of connecting, but
also of competing lines. The extension of railroads into great
connected and related systems, even though interlacing each
other, is one thing, and the absorption of competing routes
quite another thing. The restraint of combination between com-
5
peting lines upon grounds of public policy appears to be a bud¬
ding idea of the present day.
POOLING AND THE PURPOSES WHICH IT SUBSERVES.
It is an undeniable fact of our railroad history that the preven¬
tion of wars of rates by agreements as to the share of traffic which
each competitor shall carry was a measure in the nature of com¬
promise, and in no sense in the nature of a conspiracy against the
public interests. Such combinations have been instituted by the
railroad companies in order to meet the exigencies of a serious
economic and commercial defect, and they have no other raison
cVetre. In almost all cases the companies have entered into these
arrangements reluctantly, and from the single motive of mutual
protection against disaster.
During wars of rates, falsehood and deception became the rule
among merchants and other shippers, and fair dealing the excep¬
tion. The most outrageous discriminations were forced upon
railroad agents by the larger shippers. Pooling arrested these
practices, and once more enabled men to live and labor in an open
field and in a pure atmosphere.
The commercial bodies of the country welcomed pooling as a
beneficent scheme of relief against the intolerable demoralization
incident to the unjust discriminations involved in rate cutting.
But the division of traffic also conferred a consequential public
benefit of the highest importance. It tended to prevent that ab¬
sorption of the weaker by the stronger lines which uncontrolled
wars of rates not only threatened, but to a considerable extent
accomplished. In commenting upon this fact, as an officer of the
Government, in a report on the Internal Commerce of the United
States for 1884, I said : " If this state of affairs had continued, all
the railroads of the country would have been absorbed by, and
districted among, three or four great corporations. But that
would have been calamitous, for such corporations would have
had power enough, and sufficient territorial sway, to defeat the
beneficent influences of the competition of commercial forces. In
other words, transportation would thus have gained the mastery
over trade." It is a singular fact that, in the course of events, the
same danger again confronts the country, and mainly, I think, as
the result of the abolition of pooling.
THE RIGHT AND THE POLICY OF GOVERNMENTAL REGULATION.
The physical disability of the railroad to which reference has
been made has been the direct cause of almost all the questioning
which has arisen regarding the legal status of the railroad. The
power of the State and National Governments to regulate the
railroads is beyond all question. That power is founded in the
elementary principle of government that the duty of providing
6
and regulating highways of commerce is a public function, and it
is a necessary incident of corporate ownership, the employment
of the eminent domain by railroad companies, and the mixed pub¬
lic and private character of railroads. Besides, the legal and consti¬
tutional right of the Government to regulate the railroads is
grounded in the doctrine of law enunciated by the Supreme Court
of the United States in the " Granger Cases," and in the commer¬
cial clause of our Federal Constitution. Nobody at this day ques¬
tions that the power to regulate lailroads engaged in Interstate
Commerce is absolute, nor that it is an essential attribute of the
national sovereignty. The Government of the United States has
power enough to take the great railroad corporations of this
country by-the throat and shake them to death.
But the sovereignty of a nation is one thing and the policy of
calling its sovereign powers into active exercise is quite another
thing. The war power of the United States Government lay dor¬
mant for generations, and it required a struggle for the nation's
life to make that power felt in every hamlet and in almost every
home. But aside from the question of governmental power, which
need not be discussed, it is a long, wild leap from governmental '
regulation to goveimmental management and control.
There is no truth which the lessons of experience have taught
the people of this country more clearly than that we can afford to
be and ought to be very frugal in the exercise of the powers of
Government in the conduct of our internal commerce. The act to
regulate commerce, commonly known as "The Interstate Commerce
Act," took effect Api'il 5, 1887. Up to that time we had existed as
a nation ninety-eight years one month and one day in the absence
of any law regulating commerce among the States, except the act
of July 15, 1866, authorizing railroad companies chartered by dif¬
ferent States to connect their roads so as to form continuous lines
of interstate traffic,—an act of great importance to the commerce of
the country, but passed at the instance of certain railroad managers
in the absence of any public demand whatsoever. When the In¬
terstate Commerce Act took effect, our railroad system was just
about fifty years old. With a comparatively small amount of gov¬
ernmental aid, and no sort of governmental interference, it had
become the instrumentality of a larger and more splendid develop¬
ment of commerce and industry, and of public and private wealth,
than had ever before been seen on this planet, and it had justly
become one of our chief objects of national pride. It was then,
and is to-day, greatly superior in point of efficiency and cheapness
of service to the railroad systems of other countries where govern¬
mental management and control prevails, although vastly exceed¬
ing all such railroad systems in mileage, and in the magnitude and
complexity of its traffic characteristics. The railroad mileage of
the States of Illinois and Wisconsin is together greater than that
of either Great Britain, France, or the German Empire.
7
THE WORK OP THE INTERSTATE COMMERCE COMMISSION.
The function of the Interstate Commerce Commission goes only
to the prevention of unjust discriminations and unreasonable rates,
or in other words it applies to the frictional resistances and inci¬
dental evils of a vast and beneficent system of intercommunica¬
tion. This, however, is an exceedingly delicate and important duty,
and it touches the commerce and industries of the country at a
thousand points.
While I cannot follow the Commission in all its utterances, I
cheerfully acknowledge its great ability, and the fact that its work
has been marked by patient industry and sound judgment.
Without any disparagement of the Commission it may be observed
in this connection that the interaction of forces has done a vast
deal more to correct evils and to produce good than will ever be
accomplished through all the statutory enactments which the Con¬
gress of the United States will ever be able to devise. Enlight¬
ened views of self-interest have also led the companies to enter
into mutual arrangements promotive of the commercial and in¬
dustrial interests of the country. Fifteen years ago a bill passed
the House of Representatives which proposed to confer upon a
board of railroad commissioners the power of rate making, but
the able and indefatigable Senators and Representatives in Con¬
gress who framed the Interstate Commerce act after years of study
and reflection exercised great care and prudence in confining its
provisions to the regulation of the railroads, in the sense of re¬
lieving frictional resistances and incidental evils. They were also
careful not to trench upon the management or control of the rail¬
roads, and they employed even more cautious language in regard
to requiring that coterminous railroads shall connect their tracks
than had been employed in the act of July 15, 1866, at the in¬
stance of railroad managers. Nor did they in any way interfere
with the voluntary arrangements of pro-rating, through billing, and
the interchange of cars. This the Interstate Commerce Commis¬
sion has frankly stated in its last annual report as follows : " No
provision of the act to regulate commerce compels carriers gener¬
ally to enter into joint arrangements or to become responsible for
each others' conduct, but the traffic arrangements now accomplish
this to a very large extent, and they are of great public conveni¬
ence and utility." The Commission might have more fully de¬
scribed these arrangements by stating that they constitute vital
and organic features of the,American railroad system.
RESULTS OF THE INHIBITION OP POOLING.
But the "Act to Regulate Commerce " forbids pooling. I shall
not deny that pooling may have deserved to be outlawed for the
offence of applying a mean name to a respectable and useful busi¬
ness arrangement. And what has been the result of the abolition
8
of pooling ? Upon the passage of the act the railroad managers
of the country were put to their wits to devise expedients to save
themselves from bankruptcy. A fight for existence is always an
ugly fight, and. a law which forces self-respecting men to the ex¬
pedients which such a fight involves is a law of most questionable
propriety. Never before has there been greater demoralization in
the transportation interests of the country than during the year
now drawing to a close. Kate-cutting has been going on stealthily,
and it has involved violations of the long and short haul rule, and
of the law forbidding unjust discriminations, which a thousand
detectives could not discover. In certain quarters the inventive
genius of fraud has held high carnival. The whole procedure
is degrading to the standard of commercial morals. The ex¬
periences of the Commission have clearly revealed their inabil¬
ity to correct rate wars, with all the evils which they entail upon
the commercial and transportation interests of the country.
POOLING WOULD BE HELPFUL TO THE INTERSTATE COMMERCE
COMMISSION.
I firmly believe that under agreements for the division of traffic—
i. e., pooling—railroad federations can be so employed by the
Interstate Commerce Commission as to render comparatively easj'
their task of preventing unjust discriminations and unreasonable
charges, and generally of performing their function in dealing with
the frictional resistances and incidental evils of our railroad system.
The railroad federations of the country, even as emasculated by
the Interstate Commerce Act, have greatly aided the Commission
in its important work, and it is believed that if the permission to
pool were restored the duties of the Commission could be per¬
formed with one-quarter the effort which thej' are now expending
upon a railroad system running at loose ends. Instead of deal¬
ing with a lot of railroads trying to cut each others' throats and
evading the Commission at every turn, they would deal with fed¬
erations of roads always ready and willing to afford to the Com¬
mission full knowledge of all its doings, as well as the doings of
its constituent roads. Pooling need only be permitted and sub¬
jected to the scrutiny and regulating powers of the Commission
in the same sense and to the same extent that the several com¬
panies are regulated under the law as it now stands.
OBJECTIONS TO GOVERNMENTAL MANAGEMENT OP THE INTERNAL COMMERCE
OF THIS COUNTRY.
The present proposition of certain prominent railroad presidents
to place the pooling of comjietitive traffic under the control of the
Interstate Commerce Commission appears to be the result of an
exigency to which they feel that they are driven in order to secure
protection àgainst the perplexities which environ them and the
9
monstrous evils which threaten them, and which, as before stated,
are so inimical to the commercial and industrial interests of the
country. I clearly see that if pooling is to be permitted it should
be regulated in the strict exercise of the Commission's function of
preventing unjust discriminations and unreasonable charges, but,
as before stated, I should strenuously object to anything in the
nature of conceding to the Commission the power of rate making
or of railroad management which the unguarded use of the word
control might involve. The objections to such exercise of govern¬
mental power are : first, that it would be a step in the direction of
imperialism, utterly inconsistent with our form of government ; and
second, that it would tend to throttle commerce and to impose a
barrier to the commercial and industrial interests of the country.
In those countries where the power of rate making is held by the
Government it is associated with political aims and purposes, and
for that reason allied to military power. We want nothing of
that sort in this country, and there is nothing in our geographical
position or political relationships as a nation which would justify
or even suggest it. But the second objection above noted has a
more practical bearing upon our well-being as a nation. It is in¬
conceivable that the objects of relieving frictional resistances and
of correcting evils arising incidentally in the conduct of our com¬
plex and enormous railroad system now conferred upon the Inter¬
state Commerce Commission can even be expanded to the point of
directing the course of the development of the commercial and in¬
dustrial interests of this country. That has been, and must con¬
tinue to be, the work of unfettered commercial enterprise. Far
better bear a thousand ills than put a break upon the progress of
our internal commerce. This important question is too large to
be considered at length in this connection. The direct or indirect
placing of the rate-making power under the control of the Gov- ¡
ernment would introduce a fierceness into our partisan politics in '
the highest degree inimical to the public good, and perhaps dan¬
gerous to the peace of the country. That is apparent. Suppose a
party out of power should raise the cry that the party in power
was holding rates too high, the Administration seeking to outbid
its enemy for public favor, would probably be unable to withstand
the temptation to reduce rates, even unjustly, and thereby hun¬
dreds of millions of capital in railroad property might be destroyed.
The classification of freights—an essential part of rate-making
—is also a responsibility which cannot be thrown upon the National
Government without rendering it liable to difficulties demoralizing
to the conduct of our political affairs The railroad managers of
the country are continually racking their brains in order to decide
as to the relative influence which value of goods, weight, space
occupied, risk, cost of handling, competition, and other considera¬
tions, shall have in deciding the question as to the particular class
10
in which each article of freight shall be placed. Evidently the
Interstate Commerce Commission may interfere in the adjustment
of freight classifications to the extent which may be necessary in
order to prevent manifestly unjust discriminations and unreason¬
able rates, but the broad distinction between managing trade, and
prohibiting unjust practices in trade by the exercise of govern¬
mental power, is one which has a clear application in the matter of
regulating rates and freight classifications, and it is one which
should not be overlooked.
The matter of " routing " goods, i. e., determining the particular
lines over which goods shall be shipped, is also one which cannot
properly be made a governmental function. That would not only
be to decide the fate of railroads, but also of towns and cities, and,
obviously, it would have an imperialistic bearing.
When our National government shall step beyond the duty of
providing just and equal laws for the regulation of our internal
commerce—laws equally applicable to all—and shall attempt to
interfere in the determination of matters which properly belong to
the realm of individual enterprise, it will drift from the moorings
to which it was fastened by the founders of our political institu¬
tions.
CONCLUDING EEMAEKS.
The main problem of the age is how to provide some prop or
restraint as against the evils consequent upon the physical disa¬
bility of the railroad to which reference has been had,—some ex¬
pedient whereby we may give our railroad system a stable equilib¬
rium and at the same time conserve the beneficent workings of
untrammelled competition. It is not pretended that the restora¬
tion of pooling would settle all the difficulties which afflict the
American I'ailroad system, or correct all the evils which adversely
affect the business interests of the country in their relations to
transportation. The exemption of Canadian railroads and com¬
peting water lines from regulations enforced upon the railroads of
this country, the unrestrained construction of competing lines, the
absorption of competing lines, the preservation of an equal chance
to all in the competitive struggles of commercial and industrial en¬
terprise without attempting to prevent the compulsion of natural
forces,—these and other important matters command the attention
of the country at the present time. Restraint and protection are
usually associated in beneficent schemes of administering the
powers of government. Evidently we are only in the infancy of
railroad regulation in this country, and we shall not proceed to¬
ward a perfect system of regulation with infallible prescience. It
is projiosed to consider various aspects of the question hereafter
ill their order.
A prevaili/ig fault of the present day is the failure to discrim¬
inate between combinations for good and combinations for evil,—
11
between combinations which protect competition and promote
progress and combinations which stifle competition and ar¬
rest progress. Competition is the most pronounced symptom of
our civilization. By it the largest results in science, in art, in
trade, in education, and in religion are being evoked. Competi¬
tion shields capital and draws it out into active employment,
and it also protects labor against itself and against capital.
I believe that a satisfactory settlement of our transportation in¬
terests is nearer to us than is generally imagined. The danger
to be apprehended is in having recourse to methods upon which
the lamp of experience has as yet thrown no light. It is prob¬
able that, if the Interstate Commerce Commission were called upon
to frame a bill, uninfluenced by adverse public sentiment, they
would be able to formulate a simple plan of regulated railroad
federations which would solve almost all the difflculties in the
case. Perhaps no other body of men could so acceptably serve
the public in this way.
Under the sting of frictional resistances, incompetent manage¬
ment, and evils arising incidentally in the conduct of our railroad
system, vehement demands have, from time to time, been made for
drastic remedies in the direction of governmental management and
control, but it is now too late in the day to regard the railroad as
a public enemy, which must be handcuffed and placed in a govern¬
mental strait-jacket. A self-contained and liberty-loving people will
not advance to that folly.
This is a complex and mysterious world in which we live. The
harmonies of its more subtile relations are above us. In the prac¬
tical work of government, principle is regnant, while philosophy
usually takes a back seat and looks on. Our methods for the reg¬
ulation of the business interests of this vast and rapidly develop¬
ing country are almost always tentative. We go from one experi¬
ment to another, and the legislator is always at his best when, in
the language of Mr. Gladstone, he has " learned to submit himself
to the lessons of experience, and to the lessons of the hour."
JOSEPH NIMMO, Jk.
Washington, D. C., Dec. 26, 1888.