THE UNIVERSITY 
 
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 LI61— O-1096
 
 RAILWAYS IN THE 
 UNITED STATES 
 
 THEIR HISTORY, THEIR RELATION TO THE 
 STATE, AND AN ANALYSIS OF THE LEGISLA- 
 TION IN REGARD TO THEIR CONTROL 
 
 BY 
 
 SIMON STERNE 
 
 (1839-1901) 
 
 WITH SUPPLEMENTARY NOTES CONTINUING THE RECORD 
 
 TO 1 9 1 1 
 
 G. P. PUTNAM'S SONS 
 
 NEW YORK AND LONDON 
 
 ^be fjnfcfterbocftcr press 
 
 1912
 
 Copyright, 1912 
 
 BV 
 
 G. P. PUTNAM'S SONS 
 
 Tinbe ftnfclterbochet press. Y^ew Kocft
 
 
 INTRODUCTION 
 
 ( Simon Sterne was bom in Philadelphia, July 
 *, 23, 1839, and died in New York, September 22, 
 hi 1 90 1. In his professional career, which covered 
 ^ a period of about forty years, he secured a place 
 -^ in the first rank of the Bar of New York, while in 
 i^ connection with the conduct of cases before the 
 ■^ Supreme Court in Washington, with arguments 
 presented to legislative committees and to national 
 commissions, and with a long series of papers and 
 reports on subjects of national importance, he won, 
 with the profession and with intelligent citizens 
 generally throughout the entire country, authority 
 for his opinions, conclusions, and recommenda- 
 tions, and distinction and cordial regard for his 
 personality. 
 
 There came to him, in fact, as a result of certain 
 of his scholarly and incisive reports on subjects 
 of world-wide interest, a transatlantic reputation. 
 Mr. Sterne's incisive and convincing method of 
 presenting a case brought to him fame as a capable 
 S^ and successful advocate, while the thoroughness 
 of his knowledge and the breadth and strength of 
 his reasoning power placed him in the class of 
 
 iii 
 
 S48764
 
 iv Introduction 
 
 great jurists. Mr. Sterne was, however, some- 
 thing more than an advocate and something larger 
 than a jurist. His tmselfish pubHc spirit and dis- 
 tinctive service to the community in work for 
 the solution of questions of the day and of the 
 problems of his generation, entitled him to be 
 described as a great citizen. Mr. Sterne found 
 time, or he made time, after fulfilling, with a high 
 standard of conscientiousness and a full measure of 
 success, his obligations to his clients, for contin- 
 uous labor in the arduous task of educating legis- 
 lators and voters on a long series of puzzling and 
 vital problems which from year to year called for 
 the decision of legislators and for the judgment of 
 voters. Among the public subjects which secured 
 the advantage of his study and service may be 
 mentioned the following: Organized labor and its 
 relations to the community; party politics and 
 the relation of the conscientious citizen to party 
 organization; municipal reform (in connection 
 with his interest in this subject, he rendered 
 practical service as Secretary of the Committee 
 of Seventy to the demoHtion of the Tweed ring) ; 
 proportional representation; methods of legisla- 
 tion; corporations, — their responsibility and their 
 relation to their shareholders, to their clients, and 
 to the government. 
 
 In his study of corporations, Mr. Sterne gave 
 special attention to the problems connected, on the 
 one hand, with the management of railroads and 
 with the relation of railroads to the shareholders,
 
 Introduction v 
 
 and, on the other, with the pubHc and with the 
 government as representing the pubHc. 
 
 The present volume is made up of three papers 
 contributed by Mr. Sterne on the subject of rail- 
 road management and of the relations of railways 
 to the commimity. It covers the substance of 
 certain reports prepared by him for commissions 
 which were investigating the work of the railways. 
 It is some years since these papers were brought 
 into print, but the matters considered in them 
 belong to a group of questions that are still await- 
 ing solution. Excepting for the fact that the 
 problem is larger to-day than it was when it was 
 first taken up for consideration by Mr. Sterne, and 
 that its vital interest for the commiinity has been 
 more clearly emphasized, the conditions differ 
 very little from those that were in force at the time 
 the conclusions and recommendations arrived at 
 by Mr. Sterne were first brought before the 
 public. The present volume belongs, therefore, 
 to the history of the development and of the 
 management of railways in the United States, and 
 it can be made available to-day in helping to edu- 
 cate the legislators and voters of the present gener- 
 ation whose judgment is required for the solution 
 of railway problems. 
 
 It is seldom that a man who is so excellently 
 qualified by natural capacity, by training and by 
 experience, to guide public thought in regard to 
 such problems has been able or willing to give the 
 large measure of time that was given by Mr. Sterne
 
 vi Introduction 
 
 to the investigation and the study required for a 
 thorough grasp of these problems. The papers 
 that he prepared in response to the requirements 
 of his own contemporaries are too valuable to be 
 put to one side, and the publishers are well pleased 
 to have an opportunity, in printing the present 
 volume for circulation on both sides of the At- 
 lantic, to re-emphasize the continued value and 
 the importance of the recommendations of this 
 large-minded and large-hearted citizen. 
 
 G. H. P. 
 New York, Oct. i, 191 1.
 
 PREFACE 
 
 An important division of the present volume is 
 made up of an article on "Railways" contributed 
 by Mr. Sterne to the Cyclopcedia of Political Science, 
 and included in this work under the courteous 
 permission of the publishers, Charles E. Merrill 
 & Co. This article, although written years before 
 the enactment of the Interstate Commerce Law, 
 contains information, suggestions, and recom- 
 mendations which will still be found of importance 
 in the consideration of the railway question. In 
 reprinting the article, the editor has been able 
 (by the use of additional material in brackets) to 
 supplement certain of the statements, bringing 
 the record down to the present date. 
 
 The volume includes, further, an address by 
 Mr. Sterne delivered in 1895 before the Wharton 
 School of the University of Pennsylvania, on the 
 relation of the railroads to the State. At the date 
 of the delivery of this address, the Interstate Com- 
 merce Act had been in operation for a series of 
 years, and Mr. Sterne's conclusions as to the 
 working of the Act, while having special interest 
 for the students of the subject of that day, are still 
 
 vii
 
 viii Preface 
 
 valuable for the consideration of legislators and 
 of voters. The problems touched upon in this 
 address have still to secure a. satisfactory solution. 
 
 The value of Mr. Sterne's writings on railway 
 questions arises from his intimate relation with 
 many of the matters treated of by him. He was 
 instrumental in securing the passage of the Act 
 establishing the Board of Railroad Commissioners 
 in the State of New York, having appeared for 
 many years before the legislature of that State 
 in advocacy of that Act. He was counsel for the 
 Chamber of Commerce and for the Board of Trade 
 and Transportation, before the Assembly Com- 
 mittee on Railways of that State, appointed by 
 the legislature in 1879 to investigate the abuses 
 alleged to exist in the management of the railways 
 of New York. The report of that Committee, 
 usually described as the Hepburn report, is based 
 entirely upon the testimony elicited by Mr. Sterne 
 on behalf of the two commercial bodies just named, 
 and is referred to in almost every treatise on the 
 railway question since. 
 
 Mr. Sterne was frequently consulted in the pre- 
 paration of the Interstate Commerce Act, and 
 drafted some of its provisions. He had previously 
 been asked to present his views to the Cullom 
 United States Select Committee on Railways, 
 which had been charged with the work of prepar- 
 ing a regulating act, and his address printed in 
 their report throws much light on the railway 
 situation of the time.
 
 Preface ix 
 
 Mr. Sterne was appointed by President Cleve- 
 land in 1887 to investigate and report on the rela- 
 tion of the Governments of Western Europe to the 
 railways of those countries, and his report pub- 
 lished as a government document is generally cited 
 as authority. 
 
 For a sketch of his career the reader is referred 
 to the Life and Public Services of Simon Sterne, 
 by John Foord, published by Macmillan & Co., 
 London, 1903. The following list of Mr. Sterne's 
 writings relating to the railway question is taken 
 from that work : 
 
 Argument for New York Cheap Transportation 
 Association on Bill to Provide for Railway Com- 
 missioners and for Minority Representation in 
 Boards of Directors of Railroad Companies. 
 March, 1874. 
 
 Argument for New York Cheap Transportation 
 Association on Bill to Provide for Railway Com- 
 missioners. March 2^, 1876. 
 
 Argument before New York Assembly Com- 
 mittee on Railways on Bill to Create a Board of 
 Railway Commissioners. March 28, 1877. 
 
 Speech before Assembly Committee on Rail- 
 ways to Organize a Board of Railway Commission- 
 ers. September, 1877. 
 
 Argument before Assembly Committee on Rail- 
 roads on Bill to Create a Board of Railroad Com- 
 missioners. March 7, 1878. 
 
 The Railway in its Relation to Public and Private 
 Interests. An Address before Merchants and
 
 X Preface 
 
 Business Men of New York, at Steinway Hall. 
 April 19, 1878. 
 
 The Railway Problem in the State of New York. 
 Opening Statement before Assembly Special Com- 
 mittee on Railroads, on behalf of the Chamber of 
 Commerce and Board of Trade and Transporta- 
 tion of New York. Jime 12, 1879. 
 
 Railroad Poolings and Discriminations. Infor- 
 mation in Answer to Questions Propounded by 
 the Chief of the Bureau of Statistics, Treasury 
 Department of the United States. June 27, 1879. 
 
 Closing Argument on behalf of the Chamber of 
 Commerce and Board of Trade and Transportation 
 of New York before the Special Assembly Com- 
 mittee on Railroads. December 2 and 3, 1879. 
 
 Address on Interstate Railroad Traffic, before 
 the National Board of Trade. December 11, 1879. 
 
 The Corporation : its Benefits, its Evils ; as Bene- 
 factor, as Monopolist. Lecture delivered before 
 the General Society of Mechanics and Tradesmen. 
 January 8, 1880. 
 
 The Railway Problem. National Quarterly 
 Review, April, 1880. 
 
 Argument before U. S. Senate Committee on 
 Commerce in relation to Bills referred to the Com- 
 mittee, proposing Congressional Regulation of 
 Interstate Commerce. January 29, 1884. 
 
 The Railway Question : Statement to the United 
 States Senate Select Committee on Interstate 
 Commerce, at Fifth Avenue Hotel, New York 
 City. May 21, 1885.
 
 Preface xi 
 
 Report to President Cleveland on the Relations 
 of the Governments of the Nations of Western 
 Europe to the Railways. January i8, 1887. 
 
 Some Curious Phases of the Railway Question in 
 Europe. A Paper read at a Meeting of the Ameri- 
 can Economic Association, at Boston, May 24, 
 1887. Quarterly Journal of Economics, July, 1887. 
 
 Railway Reorganization. The Forum, Septem- 
 ber, 1890. 
 
 Recent Railroad Failures and their Lessons. 
 The Forum, August, 1891. 
 
 The Relation of the Railroads to the State. 
 Paper read before the Wharton School, University 
 of Pennsylvania, November 27, 1895. 
 
 M. S. S. 
 New York, Nov. 15, 191 1.
 
 CONTENTS 
 
 PAGE 
 
 Introduction iii 
 
 Preface vii 
 
 CHAPTER I 
 
 History and Political Development of 
 
 Railways ...... i 
 
 CHAPTER II 
 
 Legislation Concerning, and Management 
 
 OF, Railways in the United States . 89 
 
 CHAPTER III 
 
 The Relation of the Railroads to the 
 
 State 173 
 
 APPENDIX 
 
 A New Legal Maxim — De Maximis Non 
 
 Curat Lex 197 
 
 Index 203 
 
 xiii
 
 Railways in the United States 
 
 CHAPTER I 
 
 History and Political Economy of Railways 
 importance of the railway 
 
 Of all the factors that have contributed, during 
 this century, to the growth of wealth, to the in- 
 crease of material comfort, and to the diffusion 
 of information and knowledge, the railway plays 
 the most prominent part. It has widened the field 
 for the division of employments ; it has cheapened 
 production; it has promoted exchange, and has 
 facilitated intercommunication. In its aggregate 
 it represents a larger investment of capital than 
 any other branch of human activity; and the ser- 
 vice that it renders and has rendered to society is, 
 both from industrial and commercial points of 
 view, greater than is rendered by any other single 
 service to which men devote their activities. 
 
 Down to a very recent period in his history, 
 man was remitted to water routes mainly for the 
 transportation of goods. Migration of htmters and 
 shepherds coiild and did take place over land from
 
 2 Railways in the United States 
 
 zone to zone even without roads; but the trans- 
 portation of heavy goods, such as form the bulk of 
 the consumption of mankind, after the agricultural 
 period had fairly set in, was necessarily committed 
 to the waterways. The lands bordering rivers 
 and shores were, therefore, the first to be populated 
 by agricultural tribes, which, by establishing com- 
 mimication with other tribes by means of the 
 waterways, started an exchange of products. 
 Primitive commerce thus took its origin along the 
 lines of rivers and the lagoons of coasts, occupied 
 by tribes which were the forenmners of civilization 
 in its developed form. 
 
 History gives us accoimts of Assyrian and Per- 
 sian roads that were at best not more than 200 
 miles in length, which were built for military pur- 
 poses mainly. The Greeks made no contribution 
 to the world's great highways, the roads to Olym- 
 pia and Delphos comparing unfavorably with the 
 roads subsequently built by the Romans. Rome 
 was the first nation that appreciated the advan- 
 tages of highways ; and its great conquests of Gaul, 
 of Alemannia, and of Britain were due quite as much 
 to the genius of the Romans for road-building as to 
 their prowess and skill in arms. The road made 
 the forest insecure to the barbarian. From the 
 fight in the ambush the road compelled the fight 
 in the open, and gave to the higher civilization an 
 immense advantage over the more primitive arms 
 and the absence of tactical knowledge of less civil- 
 ized man. The road, therefore, was the means of
 
 The First Railways in England 3 
 
 conquest of the Roman civilization over barbarism 
 in the pre-Christian era. 
 
 In the shape of the railway, the road has become 
 the principal lever in man's conquest over want, 
 distress from the accidents of birth in locality, and 
 the disadvantages arising therefrom. It has dif- 
 fused civilization, and has distributed the com- 
 modities of any one part of the civilized world over 
 every other part, so that wants and satisfactions 
 become substantially equalized throughout the 
 industrial world. Famine and great general dis- 
 tress become impossible; by means of the railway 
 a large degree of well-being has, with but slight 
 modifications, mainly due to man's mistaken legis- 
 lation, been diffused all over the world. 
 
 The story of the mechanical means by which, 
 in times within the memory of men of middle age, 
 this great revolution was wrought, has been so 
 often told that it seems almost superfluous to 
 repeat it here; and yet the requirements of the 
 title of this chapter make it necessary that it should 
 be briefly recounted once more. 
 
 THE FIRST RAILWAYS IN ENGLAND 
 
 To England the world owes the railway. In the 
 coal districts of the north of England, rails of wood 
 were laid during the seventeenth century for the pur- 
 pose of reducing the friction caused by pulling the 
 coal cart from the workings to the mouth of the 
 pit. About 1767 cast-iron rails were introduced.
 
 4 Railways in the United States 
 
 Stone props, instead of timber, were used by Out- 
 ram for supporting the ends of the rails ; hence the 
 term, still used in England, of tram roads. 
 Between 1784 and 1820, Murdock, Trevethick, and 
 Gray made experiments in steam engines. The 
 modern railway, however, both by common con- 
 sent and as the verdict of engineering specialists, 
 owes its origin, as a success in transportation, to 
 George Stephenson, who built engine No. I for 
 the Stockton & Darlington Railway, which was 
 originally organized as a horse railroad, but which 
 was authorized in 1823 to use steam as a motive 
 force. Stephenson himself acted as the engineer 
 on the opening of the steam railroad line in the 
 autumn of the year 1825. Following this, came 
 the opening of the Manchester & Liverpool Rail- 
 way in 1830, the first engine of which was also 
 built by Stephenson, and which from the outset 
 not only proved the success of the railway in the 
 transporting of persons and goods, but also showed 
 it to be a financial success to its promoters and 
 stockholders in their investment of capital. 
 Within the first year after the opening of the 
 Manchester & Liverpool line, upward of 500,000 
 passengers were carried. 
 
 OPPOSITION TO THE RAILWAY 
 
 That the railway was not introduced without 
 much opposition would go almost without saying. 
 The large interest in the stage-coaches had either
 
 Development of the English Railway 5 
 
 to be conciliated, bought off, or fought. The canal 
 proprietors, who had just gotten well under way with 
 their canal projects, and were making considerable 
 sums of money out of them when this formidable 
 rival appeared upon the field, were opposed to the 
 competition of the railway. In the third place, the 
 rich landed proprietor regarded the railway as a 
 devouring monster, which would not only destroy 
 the value of his fields, but which threatened to 
 destroy his game preserves and his beautiful lawns 
 and flower beds, and, with but few exceptions, 
 the rich landed proprietor opposed the railway. 
 But stronger than all these special interests in 
 opposition to the railway, was the conservative 
 spirit of the English people, which found expres- 
 sion in the British Quarterly Review, in the 
 words: "We should as soon expect the people of 
 Woolwich to suffer themselves to be fired off upon 
 one of Congreve's ricochet rockets, as to trust 
 themselves to the mercy of such a machine going 
 at such a rate." 
 
 DEVELOPMENT OF THE ENGLISH RAILWAY 
 
 London was first connected by rail with the in- 
 terior of England in 1833, when the through line to 
 Birmingham was completed. From that time forth 
 English railways rapidly developed, so that at the 
 close of 1 88 1 the railway system of the United 
 Kingdom consisted of 18,180 miles in a country of 
 120,000 square miles in area; representing a total
 
 6 Railways in the United States 
 
 capitalization of £746,000,000, and carrying annu- 
 ally 623,000,000 passengers, with yearly receipts 
 of £64,000,000. [In 1908, the mileage was 23,205, 
 capitalization £1,310,533,212, passengers carried, 
 1,278,115,488, and annual receipts £119,894,327. 
 See Statesman's Year Book for 1 910, p. 81.] 
 
 THE EARLY RAILWAYS IN THE UNITED STATES. 
 
 The success of the Stockton & Darlington experi- 
 ment produced in the United States a greater effect 
 than it did in England. Before the Liverpool & 
 Manchester line was built, in 1830, many lines of 
 rail were already projected in the United States, 
 and as early as 1825 what is now the New York 
 Central system was begun to be built under the 
 charter of the Mohawk & Hudson Railroad. In 
 1827, Massachusetts authorized the appointment 
 of a board of commissioners, and caused surveys to 
 be made of the most practicable routes for a rail- 
 road from Boston to the Hudson River at or near 
 Albany. Two reports were made by these com- 
 missioners in the winter of 1829, giving a survey of 
 the road, accompanied with the recommendation 
 to make the commencement of the railroad on both 
 the routes at the charge of the commonwealth. 
 In 1830 and 1831 the Boston & Worcester Railroad 
 and the Boston & Providence Railroad companies 
 were chartered, and in 1832 work was already 
 under way to connect Boston with New York. 
 Pennsylvania started its railway system in 1827,
 
 Early Railways in the United States 7 
 
 and Maryland and South Carolina in 1828. The 
 Baltimore & Ohio railroad system was commenced 
 in 1828. In 1830, almost simultaneously with the 
 opening of the first railroad line in England, rail- 
 ways were being opened in the United States in 
 every direction. The growth of the railway sys- 
 'tem in the United States is best indicated by the 
 facts, that in 1828 there were three miles of rail- 
 way; in 1830, forty-one miles; in 1840, 2200; in 
 1850, 7500; in i860, 29,000; in 1870, 49,000; in 
 18^0, 93,671; and at the close of 1881, 104,813 
 miles. In 1882 the increase was about 13,000 miles, 
 jnaking a grand total mileage in the United States 
 at the beginning of the year 1883 of about 115,000 
 miles of rail. [In 1909 the total mileage, according 
 to Poor's Manual for 1910, was 236,378 miles.] 
 
 The capital account at the close of 1881 shows a 
 total of $6,815,000,000. Adding, for 1882, $40,000 
 a mile for about 13,000 miles, increases the total 
 capitalization $520,000,000, making a grand total 
 of about $7,335,000,000. [In 1909 the total capi- 
 talization, according to Poor's Manual for 1910, was 
 $17,942,282,575.] The gross earnings of the rail- 
 ways of the United States in 1881 amoimted to 
 $725,000,000, $552,000,000 of which was from 
 freight earnings, and $173,000,000 from passen- 
 gers; resulting in the payment of a dividend, over 
 and above fixed charges, of $93,344,200 interest on 
 the bonds absorbed, of net earnings of $276,654, 119, 
 the sum total of $128,587,302, in addition to what 
 went into other sources. In 188 1 the tonnage
 
 8 Railways in the United States 
 
 transported was not less than 315,000,000 tons. 
 [In 1909, the gross earnings were $3,418,677,538, 
 $1,677,614,678 being from passengers, and about 
 $1,740,000,000 from other sources. The freight 
 tonnage transported was 1,556,559,741 tons. See 
 Statistics of the Railways in the United States, for 
 1909, pp. 59, 72, 74-J 
 
 THE RAILWAY IN FRANCE 
 
 France was much slower than England and 
 America in adopting the railway system. In- 
 dependent of the fact that the Latin race is 
 not so alert in adopting labor-saving contriv- 
 ances as the Anglo-Saxon, there was a cause 
 for the slower adoption of the railway in that 
 country, as it was better supplied with high- 
 ways than England, and transportation charges 
 in the early half of this century were comparatively 
 much cheaper in France than in England. With 
 the exception of some few small lines, there was 
 no development of the railway system in France 
 until about 1842, when nine great lines were estab- 
 lished, which subsequently were amalgamated 
 into six. These at the present day [in 1883, and 
 still in 1908] divide and occupy between them 
 substantially the whole French territory. Besides 
 these, however, there are a few state lines and 
 branch roads of insignificant importance. The 
 names of these six great lines are Chemin de fer du 
 Nord, de VOuest, de I' Est, d'Orleans, Paris-Lyons-
 
 Netherlands 9 
 
 Mediterranee and du-Midi. The extension of the 
 railway system in France has not been so great 
 as it has been in England or the United States, 
 owing to circumstances which will be referred to 
 later. [The length of French lines open for traf- 
 fic in 1908 was 25,060 miles of line of general 
 interest, and 4968 miles of local interest. The 
 concessions granted to the six great companies 
 expire at various dates from 1950 to i960; the 
 periods of state guarantee of four of these termi- 
 nate at the end of 19 14, and of the others in 1934 
 and 1935. See Statesman's Year Book for 1910, 
 p. 776.] 
 
 BELGIUM RAILWAYS 
 
 The railway system of Belgium is 2000 miles 
 in extent, in a country embracing an area of 
 11,373 square miles. Two thirds of the whole of 
 the railway mileage in Belgium is composed of 
 lines worked by the state, and one third by private 
 companies. [In 1908, the mileage was 2913 
 miles, 2530 of which were worked by the state. 
 See Statesman's Year Book for 1910.] 
 
 NETHERLANDS 
 
 In the Netherlands, with an area of 13,000 
 square miles, there are 1230 miles of road, of 
 which the state owns 630 miles, and private 
 companies 600. [In 1908, the mileage was 1908 
 miles. See Statesman' s Year Book for 1900, which
 
 10 Railways in the United States 
 
 adds that all railway companies are private, 
 and that there is a state railway company, 
 only so called because the road is owned by the 
 state.] 
 
 GERMANY, AUSTRIA, AND RUSSIA 
 
 Germany, Austria, and Russia were somewhat 
 behind the western nations of Europe in their rail- 
 way development, but within the decade before 
 1880 an enormous extension in their development 
 took place, for the purpose of competing with 
 France for the eastern trade, as well as for the pur- 
 pose of military operations of an offensive and de- 
 fensive character. In the Franco-Prussian War the 
 seizure and management of the railroads by the 
 state, for the purpose of aiding strategical move- 
 ments, formed so important an element in the 
 military operations of Prussia against France, that 
 throughout central Europe a large number of lines 
 have since been built, to secure strategical ad- 
 vantages. 
 
 RAILWAY MILEAGE 
 
 The following table, taken from Spofford's 
 American Almanac for 1883, gives the statistics 
 of the railways of the world to Jan. i, 1881. [This 
 is supplemented by a table of mileage for 1909, 
 collated in Appleton's American Year Book for 
 1 910, and for 1908 in the Statesman's Year Book 
 for 1910:
 
 Railway Mileage 
 
 II 
 
 )09 
 
 405 
 
 
 2,300 
 
 
 100 
 
 
 184 
 
 
 171 
 
 
 16 
 
 3.176 
 
 Miles. Miles. 
 
 1. North America. 
 
 United States (1883) 1 17.71 7 [In 1909 240,839 
 
 Canada 7.894 " " 24,731 
 
 Mexico 2,293 " " 15.293 
 
 Total North America . . 127,830 280,863 
 
 2. Middle America. 
 
 Costa Rica 105 
 
 Cuba (Spanish) 858 
 
 Honduras 56 
 
 Jamaica (British) 25 
 
 Nicaragua 34 
 
 Trinidad.. 16 
 
 Total Middle America. . i ,094 
 
 3. South America, 
 
 Argentine Republic 1,619 
 
 Bolivia 31 
 
 Brazil 1,899 
 
 Chili 1,193 
 
 Columbia (U. S. of ) 99 
 
 Equador 75 
 
 Guiana (British) 21 
 
 Paraguay 44 
 
 Peru 2,030 
 
 Uruguay 235 
 
 Venezuela 70 
 
 Total South America. . . 7,316 35.642 
 
 4. Europe. 
 
 Austria-Hungary ii,738 In 1908 25,852 
 
 Belgium 2,597 " " 2,913 
 
 Denmark 978 " " 2,141 
 
 France 17.027 " " 29,716 
 
 Germany 21,565 " " 36,686 
 
 Great Britain and Ireland 18,168 " " 23,205 
 
 Carried forward 72,073 120,513 
 
 [n 1909 
 
 16,033 
 
 H li 
 
 500 
 
 II II 
 
 12,209 
 
 II II 
 
 2,244 
 
 II II 
 
 510 
 
 II II 
 
 316 
 
 II II 
 
 95 
 
 II II 
 
 155 
 
 11 II 
 
 1,500 
 
 II II 
 
 1.540 
 
 11 11 
 
 540
 
 12 Railways in the United States 
 
 Brought forward 
 
 Greece 
 
 Italy 
 
 Netherlands 
 
 Norway 
 
 Portugal 
 
 Roumania 
 
 Russia 
 
 Spain 
 
 Sweden 
 
 Switzerland 
 
 Turkey 
 
 Miles. 
 72,073 
 
 7 
 
 5410 
 
 1,227 
 
 946 
 
 1.039 
 916 
 
 14,067 
 
 3.849 
 
 3.836 
 
 1,636 
 
 889 
 
 In 1908 
 
 Total Europe 105,895 
 
 Miles. 
 
 120,513 
 
 771 
 
 10,388 
 
 1,912 
 
 1,607 
 
 1,690 
 
 1.995 
 
 41.136 
 
 9,227 
 
 8,321 
 2,763 
 1.239 
 
 201,562 
 
 5. Asia. 
 
 Ceylon (British) .... 
 
 China 
 
 India (British) 
 
 Japan 
 
 Java (Dutch) 
 
 Philippines (Spanish). 
 Turkey in Asia 
 
 Total Asia , 
 
 136 
 
 In 1907 
 
 566 
 
 
 " 1906 
 
 3,746 
 
 9,872 
 
 " 1908 
 
 30,576 
 
 96 
 
 " 1907 
 
 4,898 
 
 3,498 
 
 << i< 
 
 1.536 
 
 279 
 
 " 1908 
 
 292 
 
 250 
 
 " 1909 
 
 2,836 
 
 14,131 
 
 44.450 
 
 6. Africa. 
 
 Algeria (French) 
 
 Cape Colony (British), 
 now Cape of Good Hope 
 
 Egypt 
 
 Mauritius 
 
 Namaqualand 
 
 Natal (British) 
 
 Tunis 
 
 Total Africa 
 
 804 In 1908 
 
 905 
 
 
 3.757 
 
 942 
 
 
 3.503 
 
 66 
 
 
 119 
 
 95 
 
 
 
 lOI 
 
 
 978 
 
 155 
 
 
 664 
 
 3.068 
 
 2,000 
 
 11,021
 
 The Capitalization of Railways 13 
 
 Miles. Miles. 
 
 7. Australia. 
 
 New South Wales 1,183 In 1908 3,472 
 
 New Zealand 1,258 
 
 Queensland 801 
 
 South Australia 832 
 
 Tasmania 178 
 
 Victoria 1.247 
 
 Western Australia 93 
 
 2,763 
 3.559 
 1.879 
 463 
 3.396 
 1.943 
 
 5.592 17.475 
 
 Grand Total 264,826 594.189] 
 
 THE CAPITALIZATION OF RAILWAYS 
 
 In England, by reason of the high price of land 
 which the railways must occupy and acquire, and 
 a rigid application of the rule requiring the rail- 
 way corporation to pay for consequential and 
 indirect damages, its railways represent the maxi- 
 mum of capitalization. Taking this extreme of 
 capitaHzation of the English railways, of $200,000 
 a mile, as a maximum, and the capitalization of 
 the cheapest American railways, of $25,000 a mile, 
 including equipment, as a minimum capitalization, 
 it is fair to say that the average capitalization of 
 railways the world over is not less than $50,000 per 
 mile. Upon that basis the 264,000 miles of rail- 
 way in the world would represent a total valuation, 
 in the way of capital invested in these vehicles and 
 means of intercommunication, of $13,200,000,000. 
 [Poor's Manual for 1910 gives the total stock 
 bond and capitalization of the 236,378 miles of 
 railways of the United States as $17,942,282,575, 
 or at the rate of $75,905 per mile. The States-
 
 14 Railways in the United States 
 
 man's Year Book for 1910 gives the mileage of 
 railways of Great Britain and Ireland at the end of 
 1908 as 23,205, with a capitalization of £1,310,- 
 533,212, or at the rate of $273,000 per mile.] I J 
 Compared with all the debts of all the nations 
 of the earth, amounting, in round numbers, to 
 $27,000,000,000, it appears that, within the period 
 of the last fifty years [before 1880], the industrial 
 world has invested a capital in means of inter- 
 communication alone, of about one half the sum 
 that has been raised by way of loans for the pur- 
 pose of carrying on, during the last few hundred 
 years, all the wars, and constructing all the internal 
 improvements, of all the nations of the earth. 
 [According to the World's Almanac for 1909 and 
 191 1, the world's national debts in 1909 totalled 
 $36,548,455,489, and in 191 1 over $39,000,000,000. 
 The total mileage of railways in 1908 was 572,550, 
 and the total capitalization in 1908 was estimated 
 at $46,000,000,000, or largely in excess of the total 
 debts of the world.] 
 
 THE GOOD AND EVIL SIDE OF RAILWAY GROWTH 
 
 So great a manifestation of a social power, repre- 
 senting, as it does, a growth unprecedentedly rapid, 
 must and does exhibit many peculiar phases of 
 social and politico-economic problems, and must 
 bring with it evils incident to its own existence 
 which demand some form of intelligent treatment 
 and cure. It would, indeed, be remarkable and
 
 Effect of Growth 15 
 
 without parallel, that any human instrumentality, 
 however beneficial, could grow to such enormous 
 proportions without having some shadow side in 
 the way of defects, evils, and even crimes attendant 
 upon and concomitant to the immense good it 
 brings forth. The first effect of the development 
 of the railway system on the intercommunication 
 of men, has been to give a great impetus to the 
 transmission of intelligence and personal inter- 
 course. One need but read the letters of Madame 
 de Sevigne to see what an arduous task it was to 
 travel during the middle of the seventeenth cen- 
 tury. When she proposed to set out to visit her 
 daughter, 200 miles distant, she prepared her will, 
 and set about the journey with a solemnity of 
 mind somewhat akin to that felt by a person at 
 the present time who is about to investigate the 
 sources of the Nile, or make a voyage to the North 
 Pole. But one need not go back so far for examples 
 of the dangers, both anticipated and real, that 
 down to within this century beset the traveller. 
 The Newgate calendar is part of the history of the 
 stage-coach, almost to the very time when railways 
 were introduced. Highwaymen scoured the coun- 
 try round, within a radius of ten miles from 
 London. Hounslow Heath, Black Heath, Epping 
 Forest, Clapham Commons, all embraced post 
 routes, and were the scenes of the exploits of many 
 a man who, within this century, came to his end at 
 Tybiu-n and at Newgate. The time occupied in 
 moving from great centres to the capital is indi-
 
 i6 Railways in the United States 
 
 cated by an advertisement of the York and London 
 stage coach in 1706, in which the advertisers 
 promise to be in London on the fifth day out from 
 York, and to run from London to York in four 
 days. 
 
 It is said by Francis, in his History of the English 
 Railway, that the abdication of James IL was not 
 heard of in the Orkneys until three months after 
 his flight. He says: 
 
 "In the seventeenth century the charge for 
 conveyance amounted, in many instances, to a 
 prohibition. Heavy goods cost, from London 
 to Birmingham, £7 a ton; from London to Exe- 
 ter, £12 were paid. Coal was rarely seen, save in 
 the neighborhood of the district which produced 
 it. Pack-horses, strong, enduring animals, the 
 breed of which is now extinct, were employed to 
 carry the produce of the weaver's patient skill, the 
 pottery of Staffordshire, and even the coals of 
 Newcastle, laboring along heavy roads, toiling 
 beneath a burning sun, wending their way through 
 bare, bleak moors, down steep descents, by danger- 
 ous rivers, on narrow tongues of land, between 
 masses of mire and mud so deep as to be dangerous 
 if they entered — a leading horse bearing bells to 
 intimate the approach of the party he heralded. 
 The group formed a most picturesque accompani- 
 ment to the wild, weird scenes it enlivened. . . . The 
 private carriage, if such, indeed, should chance to 
 approach, left the track at the risk of never return- 
 ing to it, while more numerous parties either
 
 Influence on Cost 17 
 
 resisted the cavalcade, or moved, like the solitary- 
 passenger, out of the way, as their weakness or 
 strength might indicate. With such difficulties 
 before them, few persons left their homes but those 
 who were called by some most special reason." 
 Macaulay says that the inhabitants of London, 
 in the seventeenth century, were farther removed 
 from Edinburgh than they are now from Vienna; 
 and, indeed, it might be said, farther removed from 
 Edinburgh than they are now from St. Petersburgh 
 or New York. The reason why, to this very day, 
 Parliament sits in summer, is because the roads in 
 England were so bad, and the difficulty and danger 
 of getting to the capital so great, that it was 
 impossible in the midwinter months to convene a 
 Parliament with any expectation of having the 
 members attend from the north, from the extreme 
 west of the kingdom, from Scotland, or from Ire- 
 land. 
 
 INFLUENCE OF TRANSPORTATION ON COST OF 
 COMMODITIES 
 
 In the early part of the nineteenth century the 
 difficulty of moving bulky articles was somewhat 
 overcome by MacAdam's invention for improving 
 highways, and by the introduction of canals. Part 
 of the politico-economic results in the way of 
 cheapening and distributing products was already 
 under way by the creation of artificial waterways, 
 which were introduced into England, France, and 
 Spain in imitation of the Netherlands.
 
 i8 Railways in the United States 
 
 In fixing the price for the sale of every commod- 
 ity, the element of cost of transportation must be 
 considered, with but the very slight exception of 
 articles that are consumed on the spot where 
 created, like the food raised by the farmer for his 
 own family. As the great bulk of commodities 
 consumed in this world is transported from one 
 point to another, it is obvious at once how impor- 
 tant is the r61e that transportation plays in the 
 work of production as well as of consumption. 
 Indeed, transportation is a factor which enters into 
 both the consumption and production of commodi- 
 ties as largely as money does into their exchange, 
 and it plays even a more important role than 
 money does in determining their price. 
 
 The certainty, diminished cost, and rapidity with 
 which commodities could be transported from 
 place to place by the introduction of the railway, 
 not only increased the exchangeability of commod- 
 ities, but also made it possible to forward to distant 
 places, theretofore unsupplied with such commod- 
 ities, products which formerly were consumed only 
 at the spot where created, and the increased faciUty 
 of transportation created values which could not 
 have existed at all but for such improved methods 
 of transportation. A familiar illustration of this 
 fact is the great industry which had been created 
 in Brittany and Normandy in producing eggs and 
 butter for the London market, and even vegetables 
 for Edinburgh's daily consumption. Before the 
 existence of the railway, the rich dairies of Nor-
 
 Influence on Cost 19 
 
 mandy could give to Normandy alone the enjoy- 
 ment of fine butter, and there was no possibility 
 for the Londoner or the Scotchman to enjoy a 
 French egg or a pat of French butter at his break- 
 fast table without going personally to France. 
 For 600 or 1000 miles the railway now carries the 
 Frenchman's dairy and farmyard products as 
 easily as to the neighboring town. The prices of 
 those commodities have gone up in France, because 
 a market has been found for them. 
 
 But, what is of greater importance, their enjoy- 
 ment is possible to a greater number of people. 
 Waste, that great destroyer of human effort, is 
 eliminated, and unsatisfied wants in the particulars 
 above mentioned can no longer exist. Through 
 the instrumentality of the railway, the law of 
 competition gets its widest possible extension, 
 restrained and hampered only by limitations put 
 by human law, in the way of tariffs, on the full 
 enjoyment of the results of such competition. 
 With the extension of the lines of commerce, within 
 which a given commodity can find its market, 
 comes an increased demand, which not only again 
 reacts to produce an increased supply, but equal- 
 izes prices, so that the element of chance is 
 eliminated as much as possible from human affairs. 
 French history gives us the fact, that during a 
 period of 300 years, there were about 100 years of 
 famine in one or another part of France, while 
 contemporaneously absolute abundance prevailed 
 in other districts. Such a condition of things,
 
 20 Railways in the United States 
 
 even long before the railway, has not only be- 
 come impossible for France by the development of 
 means of intercommunication, but is now made 
 impossible the world over by reason of the railway, 
 connected with rapid steam communication by 
 sea. That periods of famine and distress arise in 
 India, in an abnormally situated community Hving 
 upon one vegetable product alone, and prevented 
 by superstition from varying their food, does not 
 diminish the force of the fact that such things are 
 impossible in any community which has emerged 
 from a semi-barbaric condition. Also, in India, 
 the periods of distress are rapidly diminishing, and 
 are becoming considerably less in intensity when 
 they occur. An exaggerated picture of the evils 
 incident to the present civilization is given by the 
 colors in which the sensational modern press paints 
 the distress and crimes of the day; and the inquisi- 
 torial and searching character of the correspond- 
 ence produces a vividness which makes the 
 superficial observer imagine that both crime and 
 suffering have increased, whereas, in point of fact, 
 they are constantly decreasing. What has in- 
 creased is the power and opportimity for observa- 
 tion and giving detailed results of such observation 
 to the public eye and ear. 
 
 That the several results of the introduction of 
 the railway have become a common heritage of the 
 great mass of mankind, and that its introduction 
 benefits the laborer more than it does the million- 
 aire, is indicated by the fact that the cost of
 
 Influence on Cost 21 
 
 transportation, which bears a greater and greater 
 relation to commodities which are bulky and 
 coarse and of general consumption, and forms a 
 less and less ratio or element of expense in com- 
 modities which are easy of transportation, and not 
 bulky in form, has been considerably lessened by 
 the railway. Even during the Middle Ages the 
 laces of Mechlin and of Brussels, and the tapes- 
 tries of the Netherlands and of France, could be 
 transported the world over. At the courts of 
 Europe specimens of the art handicraft of the then 
 known world could be found. Gems, laces, and 
 velvet could be transported on horseback without 
 difficulty; but no food or clothes produced for 
 common use or wear could be brought from a dis- 
 tance, the cost of transportation, added to the 
 original cost of the article, increasing the price to 
 such an extent as to make it beyond the means of 
 the common man. Hence the individual born to a 
 particular spot of earth, became the inheritor 
 of all the evils and all the disadvantages incident 
 to that spot. What the average man could not 
 there produce, was not for him to enjoy. What 
 his neighbor could not produce for him, he could 
 not obtain in exchange for his own products. The 
 cost of transportation served as an impassable 
 barrier to placing himself in more comfortable 
 condition, either by removal to lands more favor- 
 ably situated as a market for his labor, or by bring- 
 ing within his reach such more favorable condition 
 in the shape of the importation of commodities.
 
 22 Railways in the United States 
 
 But even in India, the famine of 1873-4 ^^.s 
 counteracted, the distress overcome, and the con- 
 sequences removed, with a rapidity never before 
 known in Indian history. Theretofore, the distress 
 occasioned by a famine ordinarily lasted upward of 
 ten years. In the following year (1875), when the 
 actual season of dearth ended in India, and some 
 favorable results in the way of weather and crops 
 were produced, the consequences of the famine 
 were quite removed. Neumann is authority for 
 the statement that in consequence of the develop- 
 ment of the railway system, upward of 2 1 ,000,000 
 hundredweight of rice was distributed within 
 eleven months by the English Government during 
 the prevalence of the famine. Even in the decade 
 1860-70, before the railway system was developed 
 in India, several years of dearth and of famine 
 occurred in the same district, and it is estimated 
 that from two and a half to three and a half million 
 people died during that period. The drought and 
 failure of crops in 1873 and 1874 were greater than 
 before, and authentic accounts show us that there 
 were not at the utmost more than 20,000 persons 
 whose death can be attributed directly to insuffi- 
 cient food. The accessibility of the newspaper 
 correspondent, by means of the railway, enabled 
 the world at large more thoroughly to realize the 
 distress that occurred during 1873 and 1874, t»ut 
 the actual death-rate, as compared with that from 
 i860 to 1870, from famine, was not one per cent. 
 
 As the difficulty of transportation is an element
 
 Production Increased 23 
 
 of cost in the exchange of commodities, a saving in 
 the cost of transportation, producing an increased 
 market, results also in the additional effect that 
 the capital which otherwise would be expended 
 upon transportation is available for other purposes. 
 It is true that the medium of transportation is 
 in itself a costly contrivance, and that it has 
 swollen, as we have seen, to $13,000,000,000 for 
 railway purposes alone; but as the great majority 
 of these enterprises pay a return to those who have 
 invested their moneys, the capital is productively 
 employed, profitably expended, and constantly 
 being reproduced by the return. The railway, 
 therefore, in its general effects upon mankind and 
 the investors, has been a blessing. 
 
 PRODUCTION INCREASED BY RAILWAYS 
 
 ' The general result of railway construction has 
 been an enormous increase of production and pro- 
 ductive power on the part of mankind, and has 
 also resulted in an enormous development in the 
 character of productions, particularly in the di- 
 rection of producing, for general and popular 
 consumption, commodities which, until the railway 
 was introduced, were in many cases impossible of 
 transportation, except along the lines of waterway. 
 One of the most interesting illustrations of the 
 condition of life before the railway is given by the 
 philosophical agriculturist. Von Thiinen, and 
 quoted by Sax, in which, assuming as a central
 
 24 Railways in the United States 
 
 point a city, he places around it, within a radius of 
 fifty miles, an agricultural district, composed of 
 six zones, for products which the farmer may raise 
 with profit for the consumption of the city. In the 
 first zone, lying closest to the city, he places the 
 production of garden vegetables, fruit, and milk ; in 
 the second zone he places the production of com- 
 modities which cost more to transport, such as 
 potatoes, carrots, etc. In the third zone the pro- 
 duction of wood is placed. In the next three 
 zones, in certain proportions entered into too 
 minutely for citation here, cereal productions and 
 animals are put. 
 
 The vast benefit conferred by freedom to culti- 
 vate land with alternate crops and with whatever 
 suits the land best, has become possible only by the 
 increase of means of transportation. Doubtless 
 the rules laid down by Von Thiinen were prac- 
 tically adopted in consequence of difficulties of 
 transportation, which, once wiped out, now not 
 only make the farm fifty miles remote as profitable 
 and valuable as the one close to the city, but 
 enable the latter in compensation to produce 
 whatever the land is best fitted to produce, instead 
 of simply that which proximity to the market 
 compels. In other words, the natural advantages 
 of production have, by the wiping out of the 
 element of transportation, or rather, reducing it to 
 a minimum, been permitted to come into full play. 
 The producer was conditioned, by proximity to or 
 remoteness from the market, as to the proper use of
 
 Increased Production 25 
 
 his instrument, the soil. He now produces that 
 which his soil is best capable of producing: all the 
 markets have become near, by the railway. No 
 better illustration can be found of this than in the 
 development of the fresh fruit industry of the 
 world within recent times. With the exception of 
 those that ripen on the stem when detached from 
 the tree, as oranges and bananas, but a very few 
 years ago the consumption of fruit other than at 
 the place where it was grown was almost impos- 
 sible. To-day, however, the fruit of California 
 can, in lusciousness and perfection, be better found 
 on the tables of the inhabitants of New York and 
 London than in San Francisco. Thus the trade in 
 products which require to be consumed fresh has, 
 by the increase of means of communication intro- 
 duced by the railway, been added to the commerce 
 of the world; and a vast addition to the world's 
 wealth has been made by the exchange ability of 
 natural products which either would not have been 
 produced at all, or v/hich, being produced in excess 
 of the local demand, would have rotted upon their 
 stems or upon the ground. 
 
 A like addition has been made to the commerce 
 of the world in the power of transporting cereals 
 and bulky productions, such as grain, iron, wood, 
 etc. The time is not far behind us when the 
 locomotives of Illinois burned com for fuel, in 
 consequence of the high price of fuel, and the low 
 price of com ; and the high price of the one and the 
 low price of the other arose from the insufficient
 
 26 Railways in the United States 
 
 means of transportation of both to the localities 
 where they could best be used. 
 
 The diminishing of the cost and the increasing of 
 the facilities for transportation, introduced by the 
 railway, have likewise substantially added to the 
 world's mineral products. In parts of this country 
 where the railway has not yet penetrated, it does 
 not pay to open mines of silver-bearing ore yielding 
 less than sixty dollars to the ton. The moment 
 that a railway is opened to the point, bringing fuel 
 thither and taking away either ore or base metal, 
 the mine that was valueless before becomes a valu- 
 able property if it yields forty or even twenty dol- 
 lars per ton, and thus its treasury is added to the 
 world's wealth. 
 
 The rapidity of transportation has another 
 effect. It diminishes the risk of capital, and 
 increases its fertility, by securing a speedy return 
 for money invested ; and inasmuch as the return of 
 the capital comes back more speedily, it lessens 
 the rates of profits, thereby securing lower prices 
 to the consumer. The effect which the production 
 of our Kansas, Nebraska, and Dakota wheat-fields 
 has had upon the English farmers is a result, only 
 on a wider field, analogous to that which has been 
 had on the narrower field of Von Thiinen's concen- 
 tric lines. 
 
 The influence of the railway upon manufacturing 
 industries has been almost as great as it has been 
 upon agriculture. In ante-railway days the fur- 
 nace and the smelting works were of necessity
 
 Increased Production 2^ 
 
 compelled to be close to the ore. It may now be 
 situated close to where the capital, which con- 
 tributes to establishing the works, is located. 
 Although such industries suffer somewhat from 
 the higher price of labor incident to the denser 
 centres of population, yet the better supervision 
 and more intelligent workmanship that is contri- 
 buted to the manufacturing process by reason of 
 the capitalist being able personally to superintend 
 the operations of his factory, and thus reduce 
 waste, enable such works by the securing of a 
 larger application of capital to find compensation, 
 and even profit, notwithstanding their distance 
 from the mine. 
 
 We therefore find the great manufacturing in- 
 dustries, though being at some distance from the 
 actual output of raw material, gradually establish- 
 ing themselves in the large cities, which are the 
 centres of capital. Denver, in Colorado, is 
 rapidly becoming the centre of the smelting opera- 
 tions of the State, for ores bearing precious metals. 
 St. Louis is an important ore-reducing point, and 
 successful reductions of precious ore are carried on 
 in Philadelphia and in the city of New York, 
 thousands of miles away from where the raw 
 material is obtained. Equally true as to textile 
 fabrics is this condition of things. Whether in the 
 shape of wool coming from the Cape of Good Hope, 
 cotton from India, South America, or from our own 
 cotton States, hemp from the Far West or from 
 Hungary, the raw products are all used up at the
 
 28 Railways in the United States 
 
 same manufacturing establishment, at Manchester 
 or at Paisley, at Cohoes or at Lowell, and but for 
 the tariff the cost of distribution of the raw mater- 
 ial would form but a small item compared with the 
 advantages obtained from water-power, proximity 
 to ships and to coal, and, more especially, facilities 
 for the obtaining and the supervision of the capital 
 employed. By delocalizing the working up of the 
 raw material into its finished product, and giving 
 to capital the advantage of immediate personal 
 supervision, a tendency has been produced which 
 has been a puzzle to many economists — the 
 centralization of industrial employment, and the 
 driving of the smaller handicraftsmen from siiccess- 
 ful competition by compelling them to become a 
 part of vast industrial establishments. The con- 
 trolling of millions of dollars of capital gives to such 
 capital great advantage over the individual more 
 favorably located as to territory, but less favorably 
 located in the employment of the more expensive 
 labor-saving machinery, and facilities for carrying 
 on large enterprises at the lowest possible rates of 
 interest. 
 
 The result of this tendency is not an unmixed 
 good. It causes cities to become overcrowded; it 
 takes away the independence of the individual 
 working man; it makes the handicraftsman part 
 of a huge machine, and compels the workman to 
 give his time more and more to smaller and 
 smaller parts of the whole operation necessary to 
 produce a given result. The smith of the Middle
 
 Advantages 2^ 
 
 Ages would produce an armor, and would even 
 ornament it with devices. He would also shoe 
 horses. To work in iron and steel in all its depart- 
 ments was his occupation, and he was probably a 
 larger man in his development than the smith of 
 to-day. But society is called upon to pay a penalty 
 for the enormous counter-advantages of the divi- 
 sion of employments in the decreased development 
 of the workman. The division of employments, of 
 course, increases considerably the output of each 
 working man, and as the sum total of output is thus 
 enormously increased, the sum total of exchange- 
 able products is enormously increased. A given 
 amount of labor will, at the present period produce 
 to the smith of to-day an exchange of products 
 many times greater than could be obtained by 
 the smith in the Middle Ages, notwithstanding 
 the superior general skill and workmanship of 
 the latter. 
 
 ADVANTAGES OF RAILWAYS 
 
 Friedrich List, in urging upon Germany in 
 1 84 1, the necessity for developing the railway 
 system sums up in the following order the ad- 
 vantages to be derived from its development. 
 I. As a means of national defence, it facili- 
 tates the concentration, distribution, and direction 
 of the army. 2. It is a means to the im- 
 provement of the culture of the nation, as it 
 facilitates the distribution and promotes the ra-
 
 30 Railways in the United States 
 
 pidity of distribution of all literary products, 
 and the results of the arts and sciences. It brings 
 talent, knowledge, and skill of every kind readily to 
 market, and increases the means of education and 
 instruction of each individual and of each class and 
 age. 3. It secures the community against dearth 
 and famine, and against excessive fluctuation in 
 the prices of the necessaries of life. 4. It pro- 
 motes the hygienic condition of the community, 
 as it destroys distances between the sufferer and 
 his means of cure. 5. It promotes social inter- 
 course, and brings friend to friend, and relative to 
 relative. 6. It promotes the spirit of the nation, 
 as it has a tendency to destroy the Philistine spirit 
 arising from isolation and provincial prejudice and 
 vanity. It binds nations by ligaments, and pro- 
 motes an interchange of food and of commodities, 
 thus making it feel to be a unit. The iron rails 
 become a nerve system, which, on the one hand, 
 strengthens public opinion, and, on the other 
 hand, strengthens the power of the state for* police 
 and governmental purposes. 
 
 SPECULATION PROMOTED BY RAILWAY BUILDING 
 
 One of the first pathological symptoms that this 
 great, beneficent growth has produced was the 
 speculative spirit that it promoted and fed. The 
 era of speculation, however, does not begin with 
 the development of the railway. Great specula- 
 tive manias, destructive in their consequences,
 
 Speculation 31 
 
 and of as far-reaching and disastrous results, form 
 part of the history of trade and commerce of the 
 past two hundred years. The Mississippi bubble, 
 under Law, the tulip mania in Amsterdam, and the 
 South Sea bubble in England, were eras of as wild 
 speculation as the railway mania in England, and 
 were much more disastrous in their consequences. 
 When the shares of Law's bank dechned, and the 
 South Sea bubble burst, all money values repre- 
 sented in those elements of speculation were 
 destroyed beyond repair. Wild as was the rail- 
 way speculation of 1844 and 1845 in England, and 
 culminating as it did in a great financial crisis in 
 the winter of 1845 and 1846, the railway, the 
 subject-matter of the speculation, still remained; 
 and although shares were frightfully depressed 
 during the crisis, they ultimately rose to some- 
 thing approaching their true value, the excessive 
 premiums paid by individuals being all that was 
 wasted. Every country which has allowed the 
 railway to be built by private enterprise has had 
 its share of speculative ventures and speculative 
 prices. Railway building has certainly fostered a 
 class of unscrupulous operators as well as tricky 
 and reckless railway officials, who found larger 
 profits in the share market, and more rapid means 
 of achieving great fortunes, than in finding capital 
 for railway construction, or honestly and efficiently 
 administering the railway properties and trusts in 
 their hands. Absence of governmental super- 
 vision as to stock capital of railways has caused
 
 32 Railways in the United States 
 
 the placing on the money markets of the world of a 
 vast quantity of fictitious values, not representing 
 actual construction in money value, but possible 
 value to result from the development of traffic and 
 anticipated dividends. [The governmental super- 
 vision since introduced has restricted this tendency 
 considerably.] 
 
 In many instances the seemingly excessive 
 profits made in the United States by railway 
 building were but a fair and natural return for 
 the great risks incurred. In the event of success, 
 the men who had the foresight and boldness to 
 invest their capital in building lines like the 
 Transcontinental Pacific through the territory of 
 hostile tribes of Indians, across plains and over 
 deserts, at the risk of life and fortune, deserved 
 considerable remuneration for their boldness and 
 their enterprise. Differences of opinion may hon- 
 estly be entertained whether they have not been 
 overpaid, and whether the methods adopted 
 through the instrumentality of political chicanery 
 were in the least justifiable. These matters apart, 
 however, it must be conceded that, but for the 
 inducement held out of very large profits through 
 the instrumentality of fictitious capitalization and 
 subsidies of land or money, many of the newer 
 territories of the United States would have been 
 unsupplied by railways. 
 
 FICTITIOUS CAPITALIZATION 
 
 What is here said is not meant to be a justifica-
 
 Fictitious Valuations 33 
 
 tion for fictitious capitalization, which is an evil 
 of such great and wide-bearing consequence that 
 it were better if railway building were somewhat 
 delayed than to allow it to come into existence un- 
 der such conditions. The writer desires simply to 
 draw attention to the fact, that the absence of gov- 
 ernmental supervision over capitalization leaves 
 individuals or corporations free to devise whatever 
 scheme they may think best to enhance profits in 
 conducting doubtful enterprises, and results inevi- 
 tably in railway management regarding no interest 
 except that of the promoters and capitalists who 
 respectively lay out the scheme and find the 
 money, and in such a case the public will be wof ully 
 left out of sight. At the very outset of railway 
 development, Stephenson, who was, from all we 
 can learn of his career, as wise a statesman as he 
 was an engineer, insisted that railways should 
 be taken in hand and operated by the government, 
 claiming that, from its nature and character, it 
 was a highway which would in time become more 
 important than the ordinary road, and which also 
 possessed the peculiarity that the owner of the 
 road would, in time, do the business of transpor- 
 tation thereon. In terse language he expressed, 
 before a committee of Parliament, his opinion that 
 competition would not be the means of producing 
 in this case, as it does in others, the cheapest and 
 best results for the community, because, said he, 
 "where combination is possible, competition is 
 excluded."
 
 34 Railways in the United States 
 
 RAILWAY DEVELOPMENT AND FREEDOM OF 
 MANAGEMENT 
 
 Railway development took its origin in England 
 and in this country contemporaneously with the 
 growth of the democratic spirit, and with the 
 dissemination of politico-economic ideas. The 
 democratic spirit was jealous of governmental 
 power, and aimed at its reduction and decentral- 
 ization. The politico-economic doctrines taught, 
 as an axiomatic truth, that the government per- 
 formed its operations at greater expense than the 
 individual, and that whatever could be left to 
 individual enterprise should be excluded from 
 the domain of government. PoUtical economy at 
 the same time asserted, as an axiomatic truth, the 
 proposition that competition was productive of 
 unmixed good; that it was universally applicable; 
 that governmental regulation and interference 
 tended to diminish or destroy competition; and 
 that it would subserve the best interests of man- 
 kind if government would let things in commercial 
 and industrial enterprise work out their own 
 salvation. 
 
 In England and America, therefore, railways 
 were placed in the hands of corporations, which 
 had power, on paying its value, to condemn prop- 
 erty. In England, maximum rates of charges were 
 in every case prescribed by the charter constituting 
 the corporation, but these maximum charges were 
 generally made so high that they practically did
 
 Early Mistakes 35 
 
 not interfere with the railway corporations; within 
 the Hmitation of these maximum charges the rail- 
 ways were free to make such discriminations or 
 modifications as they deemed necessary to meet 
 particular exigencies. For every addition to its 
 public powers and for every extension of its line, 
 the railway was compelled to go to Parliament for 
 powers. The opposition of the landowner and 
 canal proprietor once overcome, however, the 
 great benefits conferred from the very outset by 
 the establishment of railway communication be- 
 came so apparent that Parliament was but too 
 willing to grant additional powers without inquir- 
 ing very closely as to what use would be made of 
 them. 
 
 EARLY MISTAKES OF LEGISLATION 
 
 Both in England and America the legislatures 
 of the period from 1825 to 1835 made the mistake 
 of supposing that the railway bore an analogy to 
 the canal, and traces of this mistake appear in 
 almost all of the early charters. It was supposed 
 that, like the canal, the railway would be built by 
 one class of capitalists, but that also, in the same 
 manner as over the canals, the traffic over the 
 railway would be carried on by another class of 
 individuals or corporations, of forwarders and 
 common carriers, who, under regulations and 
 charges for toll established by the railroad com- 
 pany, would do the transportation business over
 
 36 Railways in the United States 
 
 the line. It was supposed that the railway was 
 merely an improved highway, the carriages of 
 which woiild nm within certain grooves from 
 which they could not depart, and that in all other 
 respects the railway corporations would be one 
 function and the business of transportation over it 
 would be in the hands of others. Thus, the char- 
 ter of the Ithaca & Owego Railroad contains the 
 following language: "Sec. 12. All persons pay- 
 ing the toll aforesaid may, with suitable and proper 
 carriages, use and travel upon the said railroad, 
 subject to such rules and regulations as the said 
 corporators are authorized to make by the 9th 
 section of this act. "—(Laws of N. Y., 1827, p. 17.) 
 
 USELESSNESS OF FIXING MAXIMUM RATES 
 FORESEEN 
 
 Certain members of Parliament foresaw that, 
 as a means of protection of the public, the limita- 
 tion upon excessive profits imposed in these imder- 
 takings by fixing a maximum rate of charges was 
 insufficient. Pre-eminent among those members 
 of Parliament was Mr. James Morrison, who, in a 
 speech delivered in the House of Commons May 
 17, 1836, said: 
 
 "The limitation of the rates of charge is, in 
 a progressive country, good for little or nothing. 
 The increase of population and trade has been so 
 very great that a toll that would have yielded an 
 ample profit on a railway constructed a dozen or
 
 Maximum Rates 2>1 
 
 twenty years ago, might now perhaps yield an 
 equal amount of profit were the rates reduced a 
 half. Nothing in fact can be more improvident 
 or more absurd than that Parliament should once 
 for all fix the rate of toll when an undertaking is 
 entered upon, and divest itself, unless by violating 
 the right of property, of the power to reduce that 
 rate in all time to come, how greatly soever it may 
 exceed what would be a liberal return for the capi- 
 tal invested in the undertaking. I need not add 
 that it is of the greatest importance to the interests 
 of the public that the cost of internal communica- 
 tion should be reduced as low as possible. The 
 limitation of the dividend is a practice found to be 
 as ineffectual as the fixing a maximum on the rate 
 of charge. The public has no check on the system 
 of management, nor can it explore the thousand 
 channels in which profits may be distributed, 
 under other names, among the subscribers, nor 
 has it any means of preventing the wanton and 
 extravagant outlay of money on the works, etc. 
 To make the provision for limiting the dividends 
 good for anything, it would be necessary that all 
 the proceedings of a company so limited should be 
 controlled by commissioners appointed by the 
 government." 
 
 He therefore insisted that in every case a clause 
 should be inserted in parliamentary concessions to 
 railway corporations, by which Parliament reserves 
 to itself the right to revise the rates of toll every 
 decade, or oftener. Mr. Morrison also deprecated
 
 38 Railways in the United States 
 
 the idea that competition would prevent excessive 
 charges, and even at that early day he foresaw 
 that a vast amount of capital would be expended 
 unnecessarily in making duplicate lines, whereby 
 the public would not be benefited by the securing 
 of lower rates of charges, but the existing traffic 
 would be divided in combination by the new lines 
 and the prior existing lines, even though the road- 
 bed of the latter was by no means taxed to its maxi- 
 mum capacity in caring for the traffic on the line. 
 He urged upon Parliament the necessity of pre- 
 venting such a waste of capital, claiming that by a 
 reckless chartering of new lines competition was 
 not secured, and that the new lines when built 
 would by combination with existing lines prevent 
 the public from securing the benefits to be derived 
 from the chartering of the new lines. 
 
 In a speech delivered in 1845, nine years later, 
 Mr. Morrison, after showing the gradual reduction 
 in the cost of and charge for transportation, and 
 the enormous benefits which the railway system 
 had conferred upon England, as well as the great 
 social changes which were taking place in conse- 
 quence of the existence of the railway system, 
 continued : 
 
 "These various circumstances prove that the 
 question now is no longer one of private considera- 
 tion, but one of great public policy, a matter not 
 to be left to the control of inferior boards or 
 private companies, but one which ought to be 
 subject to the interference of Parliament, and
 
 Maximum Rates 39 
 
 guided by the wisdom of the government. A 
 great social change is in the act of taking place, 
 and it is to this great subject that I invite the 
 attention of the house, of the government, and 
 more particularly of the right honorable baronet 
 (Sir Robert Peel) at the head of the administra- 
 tion, and I entreat him to look at this question as 
 one great whole, and not to regard it in detached, 
 isolated details and fragments. If he will view it 
 in all its many and important ramifications, if he 
 will estimate the combined effects of all sorts that 
 are certain to follow from this extraordinary com- 
 bination of influences, he will, I think, agree with 
 me in believing the subject to be one of the greatest 
 moment, one fraught with unspeakable benefits if 
 properly directed, but, if neglected or mismanaged, 
 threatening us with evils of portentous magni- 
 tude." 
 
 He then entered upon the question of tolls. He 
 
 said : 
 
 "I may here be asked the principle upon which 
 I would regard the rates of toll. My answer is, 
 that I would determine the rate of toll in every 
 case by the sum at which the particular line of 
 railway could now be constructed. The public 
 are not bound to inquire what the line really has 
 cost, but merely to ascertain the sum for which it 
 could at the present time be constructed, and the 
 railway proprietors ought to be compelled to 
 carry the public and their goods for such fare as 
 would yield a fair profit upon such outlay."
 
 40 Railways in the United States 
 
 "So little, indeed," he concludes, "was the 
 subject of railways understood in its commence- 
 ment that the original rates were fixed upon the 
 supposition that the railway proprietor would be 
 the proprietor of the road only, and that the per- 
 sons using it would pay merely for the means of 
 transit, as upon the canals. It is well known that 
 such has not been the case. Railway proprietors 
 are almost universally not only the owners of the 
 line, but the carriers upon it. Still, strange as it 
 will seem, the legislatures have continued, in every 
 railway bill down to the last bill of the last session, 
 to repeat these lists of tolls, although in no single 
 instance, I believe, has it been found practicable 
 to carry them into effect. These rates of tolls are 
 practically a mere delusion. In truth, Parlia- 
 ment might just as well have ordered the several 
 companies to exhibit in their stations a set of old 
 sheet almanacs. They were a mere useless in- 
 cumbrance. " 
 
 These were the utterances of a member of 
 Parliament of extraordinary intelligence, of a man 
 who had worked his way up from a clerkship to 
 the position of being the richest merchant in 
 England, where he occupied a position somewhat 
 akin to that held at a subsequent day by A. T. 
 Stewart in the United States. To him England, 
 and indeed the commercial world, owes the system 
 of charging in retail transactions one uniform and 
 undeviating price, without cheapening or bargain, 
 a system which has since his time been adopted as
 
 Early Charters 41 
 
 the sound commercial rule in England, in America, 
 and in the leading cities of France and of Germany. 
 
 EARLY UNITED STATES RAILWAY CHARTERS 
 
 In this country, a few of the early charters, 
 copied somewhat from the EngHsh parliamentary 
 acts, contained maximum rates of toll in a schedule 
 of rates. In some of these early charters the 
 state reserved the right to purchase within twenty 
 years the railway thereby authorized to be con- 
 structed. No general act then existed indiscrim- 
 inately granting the right of way and the right to 
 condemn property to any persons who saw fit to 
 organize a railway corporation, but in every 
 instance an application had to be made to the 
 respective legislatures for the various powers to be 
 exercised by the corporation. Some little safe- 
 guard was therefore left in the hands of govern- 
 ment against too great an abuse of public power. 
 
 In 1846, owing to the spread of the politico- 
 economic doctrines before referred to, and to the 
 corruption incident to the railway lobby in the 
 legislative halls, the new constitution of the State 
 of New York required its legislature to pass 
 general laws under which corporations may be 
 formed (Art. VIII., § i), and, acting in the spirit of 
 this requirement, the legislature of 1848 passed a 
 general railroad act, substantially like the one 
 re -enacted in 1850, except that the legislature, by 
 the act of 1848, reserved, in each particular case,
 
 42 Railways in the United States 
 
 the power to grant by special act the right of 
 eminent domain, and to give to corporations about 
 to build and operate railways a means only, under 
 the general law, of organization and of power. 
 In 1850 that safeguard wcs surrendered by the 
 passage of a general railway act omitting such 
 reservation. Thereafter twenty -five persons could, 
 by the mere filing of articles of incorporation in 
 the office of the Secretary of State, become a rail- 
 way corporation, endowed with power to take 
 property in invitum, and to run lines wherever 
 and in whatever form they saw fit, subject only to 
 certain restrictions as to rights in cities, and to 
 condemn property for such purposes. This placed 
 railway corporations upon the footing of any pri- 
 vate enterprise in the hands of corporate manage- 
 ment, and, except as to passenger traffic, was a 
 complete surrender of every attempt on the part 
 of the government to supervise, regulate, or con- 
 trol the railway corporations of the State, or to 
 subject them to any conditions securing, without 
 discrimination and injustice, fair and proper rates 
 to the public. This general railway law did away 
 with the railway lobby ; and the immediate benefits 
 in the way of extensions of the railway systems, 
 and the freedom from public corruption resulting 
 from this railroad law, caused other States to fol- 
 low in the wake of the State of New York, and 
 State after State passed general railway acts in 
 imitation or modification of the one enacted by 
 the State of New York in 1850. This introduced
 
 European Railways 43 
 
 the era of what was supposed to be competition, 
 with results which we shall presently examine in 
 detail. 
 
 RAILWAY CONSTRUCTION AND CONTROL IN EUROPE 
 
 Now let us look at the course that the railway- 
 question took in other countries. 
 
 Belgium. In Belgium all concessions for con- 
 structing railways are granted by the Minister of 
 the Interior, subject to the ratification of the 
 Chamber of Deputies and of the King. The expect- 
 ant corporators deposit a plan, giving the line of 
 the route, estimates of its revenue, and the 
 probable expense of the undertaking, together with 
 a tariff of tolls for passengers and freight traffic, 
 at which they propose to carry. The project is 
 then submitted to the Department of Roads and 
 Bridges, or to a special commission of engineers for 
 report. All inquiries to verify the calculations 
 and the statements of the projectors are made at 
 the expense of those who deposit the plan, and for 
 that purpose they are required from time to time 
 to pay in to the ministry such sums as they may be 
 called upon to contribute. Then for a period of 
 from one to three months the whole plan is adver- 
 tised in the locality to be affected by it. The local 
 councils of the municipalities through which the 
 road is proposed to be laid consider the project, 
 and report to the ministry. After these reports
 
 44 Railways in the United States 
 
 have been presented, a hearing is had, either before 
 the commission on bridges and roads, or before the 
 minister himself, at which the engineering work, 
 the guarantees for its execution, the objections to 
 its being imdertaken, etc., are discussed, and the 
 manner in which the government is to exercise 
 surveillance over it is fixed. The rate of charges 
 by the company, the time for which they may be 
 demanded, and the time within which the work is 
 to be commenced and finished, are also specified. 
 After all these questions have been settled, the 
 whole matter is then submitted to the Chamber 
 and Senate and the King, either of whom can alter 
 it before it passes as a law. 
 
 In Belgium, the government itself, however, 
 built the principal lines, or bought them up, and 
 it now in theory allows private companies only to 
 build extensions and developments of the main 
 lines. In 1850, of the lines of railway in Belgium, 
 64 per cent, of the whole were owned by the 
 government, and 36 per cent, by private individ- 
 uals. After the construction of its main lines, 
 however, the Belgium Government retired from 
 the work of constructing new lines, and in conse- 
 quence there was, in i860, 61 per cent, of the 
 mileage in Belgium in the hands of private indi- 
 viduals, and only 33 per cent, in the hands of the 
 state. By amalgamation, however, these small 
 feeders in the hands of private individuals in 
 process of time have developed into trunk lines, 
 competing with the government lines on their own
 
 European Railways 45 
 
 field. [The Statesman's Year Book for 19 10 gives 
 the mileage of lines worked by the state at the end 
 of 1907 as 2530 miles and by private companies 
 330 miles.] 
 
 The Grand Central Beige, a private company, 
 was formed out of seven companies, and the Societe 
 Generate d' Exploitation, another private line, was 
 formed out of nineteen companies. So long as the 
 government owns, controls, and w^orks its main 
 lines of railway, and keeps down the interest upon 
 the outlay to 7 per cent., no dangerous combina- 
 tion, however, is to be feared. It may at any time, 
 if any line becomes very profitable, buy it up, as, 
 imder the terms of every concession, a railway 
 line in Belgium is subject to purchase by the state 
 for the benefit of the commonwealth. The pur- 
 chase price is the net receipts of the last seven 
 preceding years of the company's working, from 
 which the receipts of two most profitable years 
 are deducted, and an annuity, equivalent to the 
 average dividend of the five remaining years, 
 with the addition of 15 per cent., is paid for the 
 road. 
 
 One of the peculiarities of the Belgian system is 
 that the government guarantees to the line it allows 
 to be built interest at the rate of 4 per cent, on its 
 actual outlay; it thus has full justification for 
 supervising the construction of the railway, and 
 insisting upon the fullest possible reports, pre- 
 scribing the method of its book-keeping, desig- 
 nating some of its officers, and generally regarding
 
 46 Railways in the United States 
 
 the railway corporation as wards of the state. 
 This method of guarantee also prevents the under- 
 taking of lines which do not promise to be fairly 
 remunerative from the start. The rates of charge 
 of both the passenger and freight traffic of all the 
 railways of Belgium are fixed in the concessions 
 themselves, which are limited to ninety years. 
 The rates are, of course, maximum rates, the 
 companies being at liberty to reduce their rates to 
 any point below the figures set forth in the law. 
 But when the state has guaranteed the 4 per cent, 
 of the capital, the consent of the Minister of 
 Public Works is, however, necessary, before the 
 tariff is permitted to be lowered. A very active 
 competition was carried on in past years between 
 the railways owned by the state, and the rail- 
 ways owned by individuals, wherever the lines 
 touched the same points. This competition has 
 resulted in the corporate railways being permitted 
 to make special contracts in the same manner as 
 the state railways did down to about 1864, when 
 a law was passed forbidding the making of special 
 contracts; and compelling both the state railways 
 and the individual railways to carry all their 
 freight at schedule rates. 
 
 By this system of state guarantee of invest- 
 ment, the state is prevented from carrying its 
 competition with the private lines beyond a cer- 
 tain point. The fact that the private companies 
 must be permitted to earn a net revenue of 4 per 
 cent, upon the capital invested therein, or the
 
 European Railways 47 
 
 state must make good the deficiency, serves as a 
 check upon the competition of the state. 
 
 This system resulted in giving to Belgium the 
 best, and in every way the most efficient, network 
 of railway service on the face of the globe. It had 
 low rates of passenger traffic, and low and certain 
 rates of freight traffic. The private companies 
 were earning good dividends upon their capital. 
 The state, on the one hand, prevented the private 
 companies from becoming a dangerous monopoly ; 
 and, on the other hand, the constant competition 
 with private enterprise compelled the state to 
 manage its own property with frugality and intel- 
 ligence, to be able to sustain the competition with 
 private enterprise. The state reserves to itself 
 the regulation at all times of the number of trains 
 to be run upon the private roads ; their connections 
 with other railways, and the amount of the 
 terminal charges, are likewise under state control. 
 Before any contract between two different com- 
 panies can be acted upon finally by the companies 
 themselves, it must be submitted to the Depart- 
 ment of Public Works and the Department of 
 Roads and Bridges, and receive their approval. 
 
 In every concession, clauses are introduced, 
 requiring the companies to take the cars of other 
 companies at certain rates, and to furnish the 
 motive power for them to some point upon their 
 own line, and the state can interfere authoritatively 
 in the event of any company refusing to comply 
 with these conditions.
 
 48 Railways in the United States 
 
 Besides the competition of the governmental 
 railways, the private railways of Belgium are 
 subjected to the active and constant competition 
 of the numerous canals, which form quite a net- 
 work of waterways throughout that little kingdom. 
 From 1850 to i860, the tendency in Belgium was 
 toward private ownership ; since i860, the tendency 
 has been toward governmental ownership, and 
 this so strongly that probably in a few more years 
 the government will be the owner of substantially 
 all the main lines of rail. [At the end of Decem- 
 ber, 1907, only 330 miles were, as alread}^ stated, 
 owned by private companies out of 2860 miles.] 
 In 1870, about 400 miles of railway were bought 
 by the government, and since that time, about 
 600 miles more have been purchased. Competi- 
 tion, however, can scarcely be said now to exist in 
 a country where the conditions of the competition 
 are fixed by so powerful a corporation as the state 
 has become, and the private owner is helplessly 
 impotent, and has no alternative but to sell out. 
 Yet the public in Belgium is well and satisfactorily 
 served by its railway system, and none of the dis- 
 graceful conditions of our own railway system are 
 known there. The overpowering force of the 
 competition of the state, of course, causes consid- 
 erable criticism and dissatisfaction on the part of 
 the investors in the shares of private railways, but 
 this competition on the part of the state is not a 
 new matter, as the projectors of the private Hnes 
 invested their moneys and built their hnes with a
 
 European Railways 49 
 
 full knowledge of the competition to which their 
 lines should be subjected. In 1870, the net result 
 exhibited by the state railways was a return of 6 
 per cent, upon the capital invested, being, on the 
 whole, as great a net result as any railway system 
 in the world exhibits. 
 
 France. To each of the great French lines, 
 now [1880 and 1910] six in nimiber (originally 
 nine), a distinct territory was laid out, in which it 
 could construct its trunk line, which was supposed 
 to be a profitable one; it was then required as a 
 condition for having the district handed over to it, 
 also as part of the condition on which it was to 
 operate their main lines, to build a number of 
 feeders and local lines, which were supposed, on 
 the whole, not to be profitable. It was soon 
 found, however, that these secondary lines were so 
 unprofitable and burdensome, that, if they were to 
 be built at all, without danger of the abandonment 
 of the main lines, the state would have to come to 
 the aid of the railways. The state, thereupon, 
 advanced large sums of money to the railways, for 
 the purpose of constructing their loop lines, and 
 made the concessions upon the condition that, at 
 the end of ninety years, all the lines should become 
 state property, and the state was to take the rolling 
 stock at a low valuation. 
 
 All the rates of charges, for both passenger and 
 freight traffic, are regulated with the utmost 
 minuteness in France. At any time before the 
 4
 
 50 Railways in the United States 
 
 ninety years expire, the government can purchase 
 the whole of the road at a capitaHzation of an 
 average of fifteen years' income, after disregarding 
 the two worst years, and taking as the minimum 
 figure of the capitalization the lowest year immed- 
 iately preceding the purchase, below which figure 
 it may not be capitalized. This is done to prevent 
 the state from resolving upon the purchase immed- 
 iately after an exceptionally good year. The 
 rates of fare and of freight traffic are, of course, 
 mere maximum rates, the companies being per- 
 mitted to go as far below such rates as they see fit. 
 Every tariff of charges must be submitted to the 
 government for the purpose of receiving its 
 sanction, and a month's notice must be given of 
 any proposed change. 
 
 France has a perpetual committee to supervise 
 its railways and to arrange the tariff of charges, 
 to settle disputes between competing lines and 
 between the public and the railways. This 
 committee is composed of the following persons: 
 A president — the Minister of Public Works; a 
 vice-president, who is the Director-General of 
 bridges, roads, and railways; three experts ap- 
 pointed by the Minister of War; three experts 
 appointed by the Minister of Finance; one ex- 
 pert appointed by the Minister of the Interior; one 
 expert appointed by the Minister of Commerce; 
 two inspectors-general of bridges and roads; one 
 inspector-general of mines, the Inspector- General 
 of railways, and a secretary. This commission
 
 European Railways 51 
 
 exercises both a commercial and a technical 
 control. 
 
 In France, every company is bound to receive 
 and carry forward all goods tendered to it, and to 
 publish, one month in advance, the mileage rate 
 at which it will carry them, and the time within 
 which it will deliver them, varying according to 
 the distance carried. No private arrangement of 
 any kind is permitted to be made with any organ- 
 ization. The terminal charges are all prescribed. 
 No one interested in the stock of the railway, or 
 in its direction, is permitted to make any contracts 
 with the railway for supplies, and even every 
 passenger time-table is submitted to the govern- 
 ment for approval. 
 
 In France, two tendencies have in recent years 
 striven for precedence: one, the extension of the 
 ownership by the state of the railway system, and 
 the hastening of the right of the state to purchase, 
 in less than ninety years, the rolling stock of the 
 railways, and to acquire the rights of way of the 
 existing lines; the other, a tendency to postpone 
 the acquisition by the state of the railway system 
 of France, coupled with the attempt, on the part 
 of the railway corporations, to make themselves 
 intermediately less dependent on the state. M. 
 Leon Say, a well-recognized authority in matters 
 of finance and political economy in France, 
 recently became Minister of France. His relation 
 to the house of Rothschild is a well-known one, 
 and it is also known that the house of Rothschild
 
 52 Railways in the United States 
 
 is the largest owner of the share capital of the most 
 important and richest line of France, the Chemin 
 de fer du Nord. In his budgets, Leon Say devoted 
 considerable space to the financial complications 
 which may arise in consequence of the large 
 additional outlays that may be required by the 
 French Government to acquire the existing lines 
 of rail, and discouraged as much as possible 
 additional outlays by the state, for the present, 
 either to extend the system of existing lines of 
 state rail, or to make any further attempts to 
 acquire such transfer by anticipating the time for 
 the acquisition by the state of the railways. 
 Notwithstanding his powerful influence and the 
 ability which all France recognized in him as pre- 
 eminently the best qualified statistician and finan- 
 cial administrator, the French Chamber of Deputies 
 refused to give countenance to his suggestions, 
 and he was compelled to relinquish power mainly 
 by reason of the impopularity of his position on 
 the railway question. 
 
 The railways owe the French Government about 
 600,000,000 francs, and the French Government is 
 now in process of investing additional sums of 
 money, not only for the purpose of building its 
 own lines, but to enable the railway companies to 
 build lines of intercommimication in territory 
 which is admittedly unprofitable. 
 
 The ablest and strongest opponent to Say's 
 project was Allain Targe, who, in concluding the 
 discussion in 1881, said:
 
 European Railways 53 
 
 <<- 
 
 'You want to temporize with the financial 
 power of the great railways. Know you, gentle- 
 men, what this power is? It is the greatest which 
 now exists in France, next to the state and the 
 order of Jesuits. You are their confederates 
 (addressing the ministry), and do not, as you 
 should, stand in a perpetual condition of warfare 
 with it. You can not deal with the railways as 
 individual associations which are to be regarded 
 each by itself, but you must regard them from the 
 point of view that they have an interest in com- 
 mon, and that this common interest is so great as 
 to make it a serious competitor to the state. They 
 are indeed an imperium in imperio. They have a 
 combined debt of 10,000,000,000 francs, and 
 employ 280,000 officers. They stand in relation 
 with all the trades, industries, commerce, and 
 agriculture of the community, and in their hands 
 rests the fate of all laborers. This enemy you 
 must fight, and the single weapon that you have 
 in your hands is the right to acquisition and pur- 
 chase. Their first word is, 'No purchase, no 
 acquisition.' You must never surrender this 
 weapon if you desire to hold power against them. " 
 The Chamber, by an overwhelming majority, 
 defeated Say's proposition, and France has again 
 determined that nothing shall interfere with the 
 ownership by the state of the railways at the time 
 originally fixed by the concession, and that if pos- 
 sible that time shall be cut short, under the power 
 of the French Government, by a ptuchase long
 
 54 Railways in the United States 
 
 before the ninety years of the original concession 
 shall expire. [The Statesman's Year Book iov 19 lo 
 says that under the laws of July 13 and Decem- 
 ber 18, 1908, the Western Railway system was 
 transferred to the state on January i, 1909.] 
 
 North Germany. All concessions are made 
 by the Minister of Commerce, unless there is to 
 be a guarantee of interest, or a subvention of 
 some kind, in which event it must pass through 
 the form of a law. Since the formation of the 
 German Empire, the separate states have agreed 
 to concede to the Empire the power of expropri- 
 ation, and the new Hnes are to be constructed 
 under the Empire. This means under the Chan- 
 cellor of the Empire, who thereupon, through a 
 Reichsgesetz, may authorize the construction of 
 any line involving the interest of the state or of 
 trade. 
 
 Prussia. At the commencement of its system 
 of railways, Prussia consciously renounced, as to 
 this service, all the benefits that are supposed to 
 flow from competition. The laws of 1838, section 
 forty-four, enacted that no second railway running 
 in the direction of the first one, and touching the 
 same principal points, should be allowed to be 
 constructed by any promoters or corporators 
 other than the promoters and corporators of the 
 first railway, within a period of thirty years frorn 
 the opening of such railway. The state, for 9, du^
 
 European Railways 55 
 
 consideration, by the very same law, however, 
 reserved the right to purchase the property of all 
 the railways and appurtenances organized under 
 that law, after the lapse of thirty years. When 
 such authority was to be exercised, the state was 
 to pay twenty-five times the amount of the annual 
 average dividend paid to the shareholders during 
 the last five preceding years. It was also to 
 pay the debts of the company in the same man- 
 ner as the company would have paid them. 
 
 A number of railways were built by govern- 
 mental subvention in Prussia, and many of them 
 have since that time become by foreclosure the 
 property of the state. To a great many others large 
 loans were made by the government, subjecting 
 them to such a measure of governmental control 
 as practically to make them state roads. As to 
 all others, the state claims a right of a third part 
 of the net revenue of the lines, beyond 5 per cent. 
 
 In 1870, there were in Prussia 3204 miles of rail 
 which belonged to the state, and 3595 miles of 
 rail which belonged to private lines. All tariffs, 
 both for freight and passenger traffic, must be 
 submitted to the government, and receive its 
 assent. These tariffs must be published, and can 
 not afterward be raised without the consent of the 
 Minister of Commerce. At the rates adopted, the 
 companies are bound to convey, without distinc- 
 tion of persons, all goods delivered for conveyance, 
 the transport of which is not forbidden by police 
 regulations.
 
 56 Railways in the United States 
 
 Since the war with France, and the consequent 
 acquisition by the Empire of the Alsace and Lor- 
 raine lines of rail, by successive enabling acts, the 
 governmental acquisition of railways proceeded 
 with great rapidity, so that each year circum- 
 scribed the number of private Hnes, and now there 
 are but very few lines to be acquired to make the 
 whole railway system of Prussia a strictly govern- 
 mental institution. Indeed, the railway directory 
 never fully survived the decree of June, 1870, by 
 which the Minister of Commerce took possession 
 of the railways for military purposes, and held 
 possession of them diuing the war with France. 
 At the close of the war, the state claimed and 
 exercised the right to supervise the expendittu-e of 
 railways and to take part in their deliberations, 
 also to determine the amount that they are to 
 carry to the sinking fund, and the amount they are 
 to pay as dividends. From that time forth the 
 paternal and inquisitorial power of the govern- 
 ment was so relentlessly exercised against them 
 that all power of resistance to state absorption 
 was undermined, and they fell an easy prey to the 
 will of the iron chancellor, Bismarck, who had 
 determined that the lines should become the prop- 
 erty of the state. The directors of the private 
 roads protested at first against this interference, 
 claiming that under the laws creating them they 
 were exempt from supervision of that kind. To 
 this the Minister of Commerce answered, that he 
 claimed the right of the royal commission to take
 
 European Railways 57 
 
 part at the meetings of the boards of the private 
 railway companies, so as to see to it that the object 
 of the meetings was in the interest of the pubhc. 
 He said that the railway administration could rest 
 assured that the supervision of the state would 
 make itself less and less felt in proportion as the 
 railway administration, by a prompt, cheap, and 
 safe service, gave evidence to the public that they 
 rightly comprehended and were endeavoring to 
 fulfil, to the satisfaction of important public 
 interests, the trust placed for public purposes in 
 their hands. The Minister of Commerce closed 
 his answer with the following significant admoni- 
 tion: 
 
 "I can not, therefore, but recommend that the 
 Prussian railway administrations press no further 
 the opinion of the narrow limits of state super- 
 vision over private railways, as expressed in their 
 memorial presented to the Chancellor, as it is a 
 position which certainly is not pressed in the 
 interest of the shareholders. This much is certain, 
 that for a long time past the commercial public 
 has demanded the restriction of the independent 
 power of railway administration, which went 
 beyond the restraints hitherto enforced." 
 
 The rapidity with which the acquisition of the 
 private railways by the Prussian Government has 
 proceeded is indicated by the following figures: 
 At the end of 1879 there were 3800 miles of state 
 railways; 2170 miles of private lines under state 
 control; and ,6200 miles of private lines under
 
 58 Railways in the United States 
 
 state supervision. At the end of 1881 there were 
 7070 miles of state hnes; 2170 miles under state 
 management; and 31 10 miles of private hnes. At 
 the end of 1882 there were 9500 miles of state 
 lines; 1320 miles of private lines imder state 
 management; and 2400 miles of private lines. 
 [According to the Statesman's Year Book for 1910, 
 the mileage of Prussian railways in 1908 was 
 22,250 mUes of state lines, and 1700 miles of 
 private lines. The editor adds that the whole 
 of the railways of Prussia will in time become 
 national property.] 
 
 The control of all this great system of ownership 
 of railways in Prussia is given over to a special 
 administration, at the head of which is the Minister 
 of Public Works, and under him are all the adminis- 
 trative officers, who respectively are located at 
 Berlin, Bromberg, Magdeburg, Hanover, Erfurt, 
 Frankfort, Elberfelt, Cologne, and Breslau. These 
 directors are appointed by the crown, and are 
 special administrators to take the place of the 
 private and individual administrators of the lines 
 to which they respectively relate. These adminis- 
 trators have in charge the expenditure of moneys 
 necessary for the establishment of new lines, and 
 by the law of 1883, 10,000 miles of new lines, to 
 belong to the state and to connect with the existing 
 lines, were devised. Mr. Von der Leyen, himself 
 one of the most intelligent co-operators in this 
 system of state acquisition, and holding a position 
 of great trust under the Minister of Public Works,
 
 European Railways 59 
 
 in an article published in 1883, in the Annual of 
 Legislation, Administration, and Political Economy, 
 Berlin, says that "the first beneficial effects of the 
 acquisition of the railways by the state in Prussia 
 was the uniformity of tariffs throughout the 
 Empire, and the impossibility of obtaining special 
 rates or personal favoritism; also the extension of 
 the through ticket system, and the cheapening 
 of transportation for working men and persons of 
 moderate means." The beneficial effect of these 
 reforms is indicated by the increase of business. 
 From 1879 to 1882 it rose from 12,000 car-loads to 
 15,000 car-loads. The surplus available for gen- 
 eral state purposes, arising from the administration 
 of the railways, over and above interest on money 
 expended by the state on its state lines and operat- 
 ing expenses, was, in 1878-9, $1,660,000; in 1879- 
 80, $3,450,000; in 1880-1, $9,575,000; in 1881-2, 
 $7,862,500. 
 
 Nearly aU railway concessions contain clauses 
 making it incumbent upon the board of adminis- 
 trators of the railway in all cases to come to proper 
 agreements as to correspondence of time-tables in 
 the administration of railways joining each other. 
 The time-tables can go into force only upon the 
 consent of the government. Persons and merchan- 
 dise must be conveyed in the order in which the 
 application is made. No difference is to be made 
 between passengers and goods which come directly 
 to the lines, and those which come to them in 
 transit from other railways. A special tariff is also
 
 6o Railways in the United States 
 
 prescribed. The state, therefore, in addition to 
 being represented on every railway board, and 
 being in itself an administrator of railways, enters 
 to a large degree as a member into all the councils 
 of railway management in fixing rates and in 
 determining through traffic. 
 
 A writer in the Quarterly of Political Economy ^ 
 Berlin, 1876, in an argument against the mainte- 
 nance of private control of railway property, says : 
 "The example of the United States affords nothing 
 to the point. There, the administration and con- 
 struction of railways in the hands of private 
 individuals and corporations is so bad, and so 
 utterly irresponsible, that that country affords no 
 argument in favor of private enterprise, and yet, 
 notwithstanding this condition of affairs, no one 
 seeks a remedy for the evils there existing by 
 placing the railways in the hands of the state, 
 because corruption has eaten so deeply into the 
 government that its ethical regeneration is scarcely 
 to be expected as long as it has a quadrennial 
 rotation of office, and the state treasury is regarded 
 as the general pocket from which each one is to 
 abstract as much as he can." 
 
 The reviewer then speaks of the system in 
 England, in which the railway has, by amalgama- 
 tion and consolidation, extended itself and become 
 a power within the state so great as to be dangerous 
 to the state. He refers to the speech made by the 
 president of the chamber of commerce of Ply- 
 mouth, who says that "the railways have become
 
 European Railways v 6i 
 
 our great highways, and should be regarded from 
 an entirely different point of view from any other 
 undertaking." 
 
 The writer further refers in his article to the 
 opinion of the royal railway inspector of Canada, 
 in which he says that the monopoly of the railway 
 in that province has become so great that the ques- 
 tion will very soon be debated, whether the railway 
 should own the state, or the state the railway. 
 From all the conditions resulting from allowing 
 free scope in private enterprise in railway con- 
 struction and management, the reviewer comes to 
 the conclusion that on the whole it would perhaps 
 be better for the German states to own the rail- 
 ways than to allow them to continue to be private 
 enterprises, though subject to state control. 
 
 'Austria. This country followed the course of 
 France, by making concessions for the period of 
 ninety years to the railways. The government 
 built several important trunk lines at the expense 
 of the state, some of which are operated by private 
 corporations, but it still owns its main trunk lines. 
 Its system of supervision of state lines, as to the 
 tariff of both passenger and freight traffic, is 
 complete. [The state lines were 6,083 miles; 
 companies* Hnes worked by the state 3000 miles 
 and worked by companies 4249; total 13,332. 
 See Statesman's Year Book for 19 10.] 
 
 Switzerland. No state lines exist in Switzerland. 
 The republic has allowed private enterprise to
 
 62 Railways in the United States 
 
 build a network of railways. It has, however,' an 
 extremely effectual system of supervising the 
 tariff of charges which must exist thereon. A 
 perpetual commission regulates the relations of the 
 corporations to the stockholders and the public, 
 and provides for a thorough investigation of their 
 affairs, and their constant publicity. [The five 
 principal Swiss railway Hnes have since been 
 acquired by the Confederation. They consisted 
 in 1908 of 31 7 1 miles. See Statesman's Year Book 
 for 1910.] 
 
 Italy. This country owns of its lines about 
 1000 miles of rail, and is in negotiation for about 
 4000 miles more, so that within a very short time 
 it will possess a large majority of the mileage of 
 rail within its own territory. [On June 30, 1905, 
 the government resumed the management of the 
 lines. These lines had been worked under con- 
 cessions since 1885. The length of state railways 
 in 1909 was 7992 miles out of a total mileage of 
 10,445. See Statesman's Year Book for 1910.] 
 
 EUROPEAN RAILWAYS NOT REGARDED AS PRIVATE 
 
 ENTERPRISES 
 
 In all these countries, therefore, even including 
 England, the railway has never been regarded 
 wholly as a matter of private enterprise. In the 
 majority the state built or assumed ownership of 
 the trunk lines, and in all of the nations of conti- 
 nental Europe the proper conduct of these corpo-
 
 English Legislation 63 
 
 rations has been regarded as so bound up with the 
 welfare of the community that they could not 
 safely be left wholly to private enterprise, but that 
 the state, representing the public, should exercise 
 continuously a more or less rigid control over their 
 construction and administration. 
 
 RAILWAY LEGISLATION IN ENGLAND AFTER 1 839 
 
 Taking up the history of the relation of the 
 government to the railways in England, where we 
 left it with Mr. Morrison's speech in 1839, let us 
 look at the steps taken by the English people and 
 Government to reacquire, as to railway enterprises, 
 the control which, notwithstanding the warnings 
 given by men like Stephenson and Morrison, they 
 had allowed to slip from their hands. 
 
 In 1839 an attempt was made by royal commis- 
 sion to subject railway schemes to some harmon- 
 ious direction as to the points from which the roads 
 were to radiate and to which they were to go, so as 
 to make them somewhat analogous to the French 
 system ; but the reply came that it was already too 
 late, because so many railroads had already been 
 constructed and projected that it would be an 
 unjust impairment of the rights of property to 
 interfere with them; that the roads were already 
 built and could not be removed, and that others 
 were too far under way to have their powers 
 changed. Between 1836 and 1839 public agita- 
 tion was directed mainly against excessive charges
 
 64 Railways in the United States 
 
 for passenger traffic ; as to which, hmitations were 
 thereupon fixed. The powers of the railways had 
 already become so great that many members of 
 Parliament were directly under their influence, 
 and many others owed their seats to the railway 
 power. Notwithstanding this influence, however, 
 a bill was introduced in 1840 to create a commis- 
 sion for the superintendence of railways, the 
 commission to be a kind of sub-organization to the 
 Board of Trade. This bill, after several amend- 
 ments, was carried, mainly through the influence 
 of Sir Robert Peel, who, although a few years 
 before bitterly opposed to any interference with 
 private control of the railway system, now ad- 
 mitted, "that they were monopolies, and that it 
 was necessary to create some tribunal as a standing 
 investigating committee for Parliament, to prevent 
 too manifest and too great an abuse on the part of 
 these powerful and moneyed organizations." The 
 bill was considerably modified during its passage 
 through the house, more especially in the second 
 section, which, as originally reported, had pro- 
 vided for a uniform system of book-keeping, and 
 for a very thorough system of reports on the part 
 of the railways to the Board of Trade. This pro- 
 vision, however, in the bill that eventually became 
 law, was so emasculated as to require simply 
 reports in such manner as the railways saw fit to 
 make them. The bill as passed embodied a 
 clause which established a bureau of railways as a 
 part of the Board of Trade.
 
 English Legislation 65 
 
 A glance at the 55th volume of Hansard's 
 Debates, p. 125, et seq., will show how greatly the 
 ablest men in Parliament were, at that time, under 
 the influence of general phrases in relation to the 
 non-interference of government, and how com- 
 pletely they misunderstood the essentially mo- 
 nopolistic character of the railway corporation, 
 interference with which was, in this case, a duty 
 which, if neglected, was a renunciation of one of 
 the chief functions of government. It was assumed 
 in the debate, by those who were opposed to the 
 bill, that the right of the state with reference to 
 the railways was entirely limited to securing the 
 safety of the travelling public, and that as to the 
 carrying of freight or goods the railway was an 
 entirely private enterprise, like any other common 
 carrier. The first protest of moment against this 
 view, in addition to Mr. Morrison's efforts, was 
 the publication of William Gault's pamphlet on 
 Railway Reform in 1843. After a very thorough 
 examination of the whole subject, and recognizing 
 fully the fact, that, in its importance, the railway 
 bore the same relation to the highway that the 
 highway bore to the foot-path, inasmuch as the 
 traffic of the country was being carried, to a very 
 considerable degree, almost wholly by rail, he 
 came to the conclusion that the existing lines of 
 rail should be acquired by the state, and that all 
 fiurther extensions of the railway system should be 
 carried on by the state as the owner of the public 
 roads. 
 5
 
 66 Railways in the United States 
 
 At the beginning of the session of 1844, Mr. 
 Gladstone, then President of the Board of Trade, 
 requested the House of Commons to appoint a 
 committee to report what, if any, changes should 
 be made in relation to the consideration of railway 
 bills; what amendments should be made in the 
 railway concessions and franchises already granted, 
 and what changes, if any, should be made in the 
 standing orders as to the manner of the considera- 
 tion of railway bills. Mr. Peel objected to the 
 extent of the inquiry, claiming that •it^'wjas an 
 interference with vested rights, to consider grants 
 already made. He expressed his conviction, at 
 that time, that the further development of the 
 railway system would bring about a competition 
 which in time would do away with much of the 
 monopolistic character of those enterprises, A com- 
 mittee of fifteen was appointed, and testimony was 
 taken, mainly upon the question of the absence of 
 competition and combination between railways, 
 the building of loop lines for subserving special 
 interests without regard to the public needs, and 
 the tendency to amalgamation which then had 
 begun to make itself felt. A large proportion of 
 the time of the committee was taken up in the 
 examination of the question of minimum rates for 
 passenger traffic. Mr. Glyn, the banker, who, 
 next to Hudson, the railway king, was, at that 
 time, the largest share proprietor in England, and 
 who had been for many years, and was then, the 
 president of the London & Birmingham Railway,
 
 English Legislation 67 
 
 stated his conviction that no corporation ought to 
 have any larger powers than were absolutely 
 necessary for the profitable working of its line; 
 he conceded that if the matter were an entirely 
 new question, he had no doubt whatever but that 
 the best way of dealing with it was for the state to 
 own the railways, because, he said, the people as a 
 whole had as much right to their great public 
 highways as they had to the light of heaven. On 
 economic groimds, however, he disapproved of the 
 purchase of the railways by the state, saying he 
 feared the state would be cheated in the trans- 
 action, and intimating that the roads had not cost 
 what they were capitalized at; but he believed 
 that thenceforth it was the duty of the state to 
 control the railways with greater rigor and force. 
 The report finally made by this committee con- 
 tained a severe criticism upon the then existing 
 mode of considering and passing railway bills, 
 which the report suggested should all be sub- 
 mitted to the Board of Trade for criticism before 
 being entertained by the proper committees of the 
 Houses of Commons and of Lords. Parliament took 
 up the report for action in 1844. The suggestion 
 was then made, that, when any new railway shall, 
 after fifteen years, pay for three successive years, 
 10 per cent, dividends, it shall be in the power 
 of the Board of Trade to revise its tariff, but 
 in that event, that Parliament must guarantee 
 the 10 per cent, dividend to the railway. This 
 suggestion was again modified by the further
 
 68 Railways in the United States 
 
 suggestion that the Board of Trade could demand 
 a rebate of the guarantee by reason of bad manage- 
 ment. A further limitation was made by pro- 
 viding, that, during the existence of the guarantee, 
 the corporation shall not increase its capital stock, 
 and that at the end of fifteen years the Board of 
 Trade might purchase every new railway at twenty- 
 five times the average dividends of the last preced- 
 ing three years, from which, however, a deduction 
 was to be made for insufficiency of the permanent 
 way, and for impairment of the rolling stock. 
 
 Against the passage of this bill the railways 
 fought principally for time. In this they were 
 aided by the powerful Sir Robert Peel, who 
 suggested that a year's notice, at least, should be 
 given before a bill of such magnitude could be 
 passed. {Hansard' s Debates, vol. i., 76, p. 482.) 
 
 Mr. Gladstone referred to Mr. Saunders' testi- 
 mony and to that of George Hudson, showing that 
 the railways did not consider themselves free from 
 competition and opposition by other lines of rail, 
 and his admission was used by the opposition to 
 show that the natural law of competition would 
 apply to cure the evils that were complained of. 
 Mr. Gladstone, in a speech, showed that the 
 threat of the passage of this law did not prevent 
 new railways from being organized ; that fifty new 
 bills, representing £20,000,000, had been filed since 
 the report was made. He stated that, though he 
 knew the railway had become sufficiently powerful 
 to send representatives into Parliament instead of
 
 English Legislation 69 
 
 having them hang around the lobby, he did not 
 believe they would become so formidable, or that 
 Parliament had sunk so low, that its members 
 would, at the bidding of the railway interests, 
 refrain from giving their sanction to the bill 
 unanimously reported by their own committee. 
 
 John Bright was the most formidable opponent 
 to Mr. Gladstone's suggestion. He was a free- 
 trader, flushed with the great victory which had 
 just attended his efforts in the establishment of 
 his principles, and was ready to apply these princi- 
 ples to the most incongruous subjects. He was 
 in the full vigor of his power, and had already 
 made for himself a great reputation for honesty of 
 purpose and for oratory. He dwelt upon the 
 enormous benefits which railways had conferred 
 upon society, showed that they were the bene- 
 factors of mankind, and that monopolies had 
 always been the enemies of mankind; and there- 
 fore, he argued, it was monstrous to apply the 
 term monopoly to them. He showed that the 
 railways then already represented, in the way of 
 vested capital, £60,000,000 in England; that they 
 were carrying 25,000,000 passengers annually; 
 and that it was extremely dangerous to interfere 
 with so great and constantly growing an interest. 
 
 Sir Robert Peel argued on both sides of the 
 question, but insisted, almost in the spirit of 
 apology, that the government had a right to pro- 
 vide the same sort of publicity, with reference to 
 the railways, that it had provided with reference
 
 70 Railways in the United States 
 
 to the Bank of England's accounts, and he con- 
 cluded with asking a vote in favor of the bill. The 
 bill obtained, on the second reading, i86 votes in 
 its favor, against 98 in opposition. Among those 
 who opposed it were Messrs. Bright, Cobden, 
 Milner, Gibson, Ricardo, and Macaulay. The bill 
 was then considerably amended before it obtained 
 its third reading, all the amendments being in 
 favor of the railways. As modified, it was passed, 
 but the modifications made it useless legislation. 
 The changes that were made in it gave the railways 
 twenty-one years instead of fifteen before their 
 railway tariff could be changed, notwithstanding 
 the payment of 10 per cent, dividend. It was 
 then provided that the guarantee of the state 
 should run for twenty-one years after the 10 per 
 cent, annual dividend, thus making it quite certain 
 that the state would never interfere with the tariff. 
 All the deductions which, in the event of purchase, 
 were to be made, by reason of bad management 
 and restrictions upon increase of capital, and for 
 want of repair of permanent way and rolling 
 stock, were struck out. The provisions with 
 reference to the purchase by the government were 
 thus made extremely onerous to the state. As the 
 provision in relation to state acquisition was 
 further modified so that before it could take effect 
 it required another act of Parliament to guarantee 
 the purchase money, the act has remained ever 
 since, to all intents and purposes, a dead letter. 
 The discussion on this bill did, however, direct
 
 English Legislation 71 
 
 public attention to the question, and the Quarterly 
 Review of 1844, in an article on "Railway Legisla- 
 tion" (pp. 224, 280), says in conclusion: 
 
 "It is perfectly clear that sooner or later this 
 great pubhc trust can not remain in the hands of 
 private corporations. The railways themselves 
 have given the best evidence of their desire and of 
 the necessity for amalgamation, by which they 
 admit that the individual corporation can not, in a 
 system which requires uniformity and harmony, 
 exercise absolute sway; and when the time shall 
 have arrived that this amalgamation will bring the 
 railway into the hands of the fewer corporations, 
 or of a single corporation, which means into the 
 hands of a few individuals, it is then but a step to 
 the suggestion that the state, for its own safety, is 
 compelled to take possession thereof; for a system 
 of transportation which permeates every part of 
 the land, which destroys and devours every other 
 system of intercommunication, which incorpo- 
 rates itself into every public and private interest, 
 which is as universal and all-present as the arterial 
 and venous systems of the human body, sooner or 
 later will come under the general control, for 
 better or worse, of the state organization." 
 
 In 1844, a special act was passed (8 and 9 
 Victoria, chap. 96) by which general leasing 
 powers in private railway acts were restricted, 
 and all powers granted by any private act of that 
 session, to lease, were repealed. 
 
 Pursuant to the act of 1844, a railway board.
 
 72 Railways in the United States 
 
 which existed just one year, was constituted as 
 part of the Board of Trade, the duty of which was 
 to report upon new railway schemes and purchases, 
 and upon proposed extensions, amalgamations, and 
 competition. The board reported by giving its 
 decisions without assigning reasons. It sat in 
 secret, and published no debates. This un-Eng- 
 lish proceeding subjected it to a degree of criticism 
 and animosity that compelled the government to 
 recommend that the board be abolished, which 
 was accordingly done in 1845. In that year the 
 competition between railway corporations became 
 so keen, and the canal companies suffered to such 
 a degree from it, that a law was passed authorizing 
 the canal companies to vary their tolls, and to 
 borrow money so as to maintain the competition. 
 The railways thereupon rapidly bought up the 
 canals, and canal and railway amalgamations went 
 on with great vigor. In 1846, one year thereafter, 
 a committee of Parliament reported that within 
 that year a large number of canals had passed 
 practically under the control of the railway cor- 
 porations, and were working under joint manage- 
 ment. This committee recommended that all 
 amalgamation between canal and railroad com- 
 panies should be forbidden, except under the 
 sanction of Parliament. They also recommended 
 that it was absolutely necessary that some depart- 
 ment of the executive government should be so 
 constituted as to command general respect and 
 confidence, and to be charged with the supervision
 
 English Legislation 73 
 
 of railways and canals, with full power to enforce 
 such regulations as might, from time to time, be 
 indispensable for the accommodation and general 
 interest of the public. They particularly recom- 
 mended this in view of the fact that the private 
 arrangements which are made between railway 
 companies and railway and canal companies, and 
 which may or may not be ultra vires, do not come 
 under the supervision of Parliament at all, and 
 expressed their belief that, with a properly consti- 
 tuted executive body, it would come under their 
 supervision, and could be subjected to restriction. 
 
 Between 1844 and 1846, came the period, 
 already referred to, of the railway speculative 
 mania. The influence which that had upon Parlia- 
 ment is given by Francis, in his History of the 
 English Railway, in these words: 
 
 "Members were personally canvassed, solicita- 
 tions were made to peers, influences of the most 
 delicate nature were used, promises were given to 
 vote for special lines before the arguments were 
 held, advantages in all forms and phases were 
 proposed to suit the circumstances of some and 
 the temper of others. Letters of allotment were 
 tempting, human nature was frail, and the pre- 
 mium on five hundred shares irresistible. The 
 AthencBum, about that time, said: 'It is the 
 fashion to assume that our legislators are not now 
 open to pecuniary bribes. It may be so, but we 
 must leave that question to be decided by our 
 children's children. If public rumor be no more
 
 74 Railways in the United States 
 
 than usually scandalous and false, there are some 
 curious revelations yet in store for these young- 
 sters, relating to railway bills. ' The curious reve- 
 lations had not to be waited for until the birth of 
 our children's children, but they came in 1845, and 
 in the winter of 1846, with the railway crash. A 
 return called for by the House of Commons, of the 
 dealers in railway undertakings, formed a very 
 remarkable blue book. The noble, who, in the 
 pride of blood and birth, had ever held traffic in 
 contempt, was there blazoned as a trader. The 
 priest, who, at his desk, prayed to be delivered 
 from the mammon of unrighteousness, was there 
 revealed in the city to sell his scrip at a premium. 
 There were 900 lawyers and 364 persons connected 
 with the banking interest, who subscribed con- 
 tracts for above £2000 ; one solicitor was down for 
 £154,000. There were 157 members of Parlia- 
 ment, of whom one signed for £290,000, one for 
 £250,000, and one for £171,000; while the remain- 
 der were down for sums which must have influ- 
 enced their feelings to a degree which might have 
 influenced their votes." (Francis' History of the 
 English Railway, vol. ii, pp. 188-190.) 
 
 In 1846, an act was passed constituting the rail- 
 way commission, which was composed of five per- 
 sons, the president of which was paid £2000 a 
 year, two members were paid £1500 each, and two 
 others received no pay. The main purpose of 
 this commission was to take into consideration 
 all schemes which were to be submitted to Parlia-
 
 English Legislation 75 
 
 ment, to make special inquiry and reports, and 
 formally to report upon all bills before Parliament 
 on railway matters, so as to guide the parlia- 
 mentary committee. But as the railway com- 
 mittees of the House of Commons and House of 
 Lords refused to be guided by the recommenda- 
 tions of this commission, it was abolished, and 
 its duties were once more transferred to the 
 Board of Trade. A series of bills was passed to 
 prevent the absorption of lines by rival companies, 
 but the ingenuity of railway counsel was superior 
 to the ingenuity that drafted these bills, and by 
 the purchase of stock of other railways and 
 appointing railway directors who were mere 
 simulacra, the railway corporations absorbed 
 each other's lines without having parliamentary 
 powers so to do. 
 
 In 1853, another railway special committee was 
 appointed by Parliament. This committee, after 
 taking testimony, recommended the appointment 
 of a committee of a more permanent character 
 than had theretofore been in existence, to consider 
 all schemes submitted to Parliament at every 
 session, and that a railway department of the 
 government should be created for the purpose of 
 affording assistance and advice whenever the 
 committee might desire it. It then pointed out 
 that amalgamation of railways had proceeded to 
 such a degree in England that each particular 
 part of England had become the centre of a system 
 of railway management of its own, and that the
 
 ^^ Railways in the United States 
 
 great railway corporations had swallowed up all 
 the competing and intersecting lines. It sug- 
 gested the passage of a bill relating to the traffic 
 arrangements between different companies, and 
 submitted a plan of a measure by which the canals 
 were to be maintained. The result of these 
 recommendations was the passage of the canal 
 and railway traffic act of 1854, and a prohibition of 
 preferences in traffic contracts given by different 
 railways. Part of the scheme of the act of 1854 
 was to submit grievances to the Board of Trade 
 only after the Court of Common Pleas, sitting as 
 a court, assisted by an engineer and barrister, had 
 determined that an actual grievance existed. This 
 part of the act proved inoperative. Lord Camp- 
 bell foresaw and foretold that it would become 
 inoperative, insisting that a lay tribunal should be 
 created for the investigation of such questions, and 
 that judges were not the proper persons to consider 
 matters of that kind, as they were naturally dis- 
 inclined to act in an advisory manner to govern- 
 mental biu-eaus, and that such disinclination 
 would render resort to them well-nigh useless. 
 However, the law of 1854 contained one very 
 useful provision, to the effect that no preferences 
 of any kind should be given by railways for services 
 of a like character, and forbade all discrimination 
 between individuals as to traffic of like character. 
 In 1865, a royal commission was appointed to 
 consider the subject of railway communication. 
 It made its report in 1867, after taking a great
 
 English Legislation 77 
 
 mass of testimony as to British and foreign rail- 
 ways. As regards legislation, this commission 
 insisted upon the expediency of requiring the 
 Board of Trade to assist the parliamentary com- 
 mittees by reports. It made many valuable sug- 
 gestions as to interchange of traffic; it considered 
 the subject of amalgamation, and the necessity of 
 checking it; nothing was done, however, to prevent 
 the proceeding of the amalgamation and consolida- 
 tion of English railways, as is shown by the fact, 
 that, in 1845, the London & North V/estern Railway 
 had owned but 379 miles of road, and that in 1870 it 
 operated and owned 1507 miles. The Great Wes- 
 tern, which originally consisted of 118 miles, 
 operated and owned 1370 miles in the year 1870. 
 The North Eastern, which in 1846 owned 274 
 miles, had, in 1870, extended its line so as to be 
 the owner of 128 1 miles; and the Great Eastern, 
 which originally had 138 miles of road, operated 
 and owned 874 miles in 1870. Amalgamation had 
 therefore proceeded in England to such a degree 
 that, in 1870, the field was practically divided 
 between the great lines of railway, so that, some- 
 what like France, England had seven great sys- 
 tems of lines brought into existence without 
 concessions of fields of territory by the state, but 
 which, by the natural course of development and 
 consolidation, and the economy produced by such 
 consolidation, divided the field of railroad enter- 
 prise in England, and created a concentrated 
 power that presented at that time to the English
 
 78 Railways in the United States 
 
 Government the formidable question, whether 
 ultimately the state should control the railways, or 
 the railways control the state. 
 
 We now come to the most important epoch in 
 the English railway history, one reversing the 
 policy which, down to that period, regarded the 
 railway as private enterprises — the appointment 
 of a joint select committee, in 1872, of the House 
 of Lords and House of Commons, to consider the 
 subject of railways. This committee was com- 
 posed of Mr. Chichester Fortescue, Lord Derby, 
 the Marquis of Salisbury, Earl Cowper, Lord 
 Redesdale, Lord Belpur, Mr. Hunt, Mr. Childers, 
 Mr. Cross, Mr. Dodson, and Mr. Stephen Cave. 
 
 After taking testimony covering, with appendix, 
 upward of a thousand pages of an English folio 
 blue book, the committee recommended the organ- 
 ization of a new tribunal to consider railway 
 grievances, constituted both as a court and as an 
 advisory committee on railway legislation. The 
 committee recommended this course in preference 
 to fixing tariffs by statute, as the change of cir- 
 cumstances often makes such tariffs inapplicable 
 or impossible. This was not only the recommenda- 
 tion of the committee, but followed the opinion of 
 almost every leading railway official of England 
 who was examined as to the proposed remedies, 
 among whom were Mr. Allport, Sir Edward Wat- 
 kin, Mr. Price, Mr. Broughton, Mr. Dawson, and 
 others. 
 
 The committee conceded that it was difficult
 
 English Legislation 79 
 
 to provide any fixed or self -regulating rules which 
 would, through the medium of self-interest or of 
 the ordinary action of law, protect the public. 
 They recommended that the proposed tribunal 
 should be endowed with certain functions, among 
 which were : to see to it that railways publish rates 
 and fares and live up to them, and to consider 
 and act upon such alterations as from time to 
 time are adopted in the classifications ; to examine 
 into every case of undue preference ; and to inves- 
 tigate complaints of unfairness between traders 
 or between towns and districts, so far as they can 
 be raised under the railway and canal traffic act 
 (Lord Cardwell's act of 1854, ^^^ amendments). 
 It having been found that the expense of going to 
 the Court of Common Pleas was so great as to give 
 the wealthy companies great advantages over pri- 
 vate traders, and that non-publication of rates pre- 
 vented the trader from knowing whether he had 
 a case or not, the committee recommended that 
 exclusive jurisdiction be given to the tribunal to 
 examine into cases of preferences, and that appeals 
 from these decisions be limited to such cases as the 
 special tribunal should certify involved questions 
 of law which should be considered by the West- 
 minster tribunals. A further function with which, 
 according to the recommendations of the commit- 
 tee, the tribunal was to be clothed, was to see to it 
 that proper facilities be given for the forwarding of 
 passengers and goods under the provision of the 
 railway and canal traffic act relating to that subject.
 
 8o Railways in the United States 
 
 It was conceded, in the report of the committee, 
 by Mr. Broughton, Sir Edward Watkin, and Mr. 
 Price, that the courts were incompetent to deal 
 with the subject, and that arbitration was un- 
 satisfactory; hence the necessity for the organiza- 
 tion of a tribunal to secure those ends. 
 
 The committee also recommended the control 
 of tolls on canals by the tribunal, and the enforce- 
 ment of any obligation imposed on the railway 
 companies to secure the proper maintenance of 
 free navigation on the canals. The tribunal was 
 to settle questions between the local authorities 
 and the companies concerning new branch lines, 
 and also to settle all disputes between railway and 
 canal companies. They were also to settle all 
 questions arising between the war and postofiice 
 departments on the one hand, and the companies 
 on the other. 
 
 The additional duty to be conferred on this 
 special body was to advise Parliament in reference 
 to railway legislation. As to the necessity for 
 constituting this court, the committee say: "No 
 existing institution possesses the necessary quali- 
 ties. The Board of Trade has not the requisite 
 judicial character or means of action, a court of 
 law fails in practical knowledge and administra- 
 tive facility, and the committees of the Houses of 
 Parliament have no permanence." A new body, 
 therefore, was, in their opinion, to be constituted 
 for all these purposes, and to wield all these pow- 
 ers, to be called the railway and canal commission,
 
 English Legislation 8i 
 
 and to consist of no less than three persons of 
 high standing, one of whom should be an eminent 
 lawyer, and another a person well acquainted with 
 railway management, their proceedings to be as 
 simple and inexpensive as is consistent with giving 
 due consideration to and hearing questions openly 
 and fairly. In conclusion, the committee state 
 that "competition between railways exists only 
 to a limited extent, and can not be maintained by 
 legislation; that combinations between railway 
 companies were increasing and likely to increase, 
 whether by amalgamation or otherwise; that the 
 self-interest of the companies alone was not suf- 
 ficiently protective of public interests, and that 
 their interest was only to a limited extent the in- 
 terest of the public. And it therefore becomes 
 necessary," they add, "to consider what can be 
 done in the way of enforcing statutory obliga- 
 tions." As to the ineffectual character of past 
 legislation, both in limiting dividends and creating 
 a maximum of rate of charge, the committee were 
 by no means mealy-mouthed in the way of con- 
 demnation. They say of the railway companies: 
 "They are monopolies who are unlimited in their 
 charges for carriage except by the parliamentary 
 maximum, and who are restricted by no definite 
 limit whatever as regards terminal charges; these 
 two charges they mix up together, and under the 
 present system do not separate. They are prac- 
 tically under no restriction except that of their 
 own interest, which may not be the same as that 
 
 6
 
 S2 Railways in the United States 
 
 of the public. They claim and exercise the right 
 to vary their charges to any extent they please 
 within the parliamentary maximum, to favor one 
 set of men or description of goods at the expense 
 of another; to charge high rates for short dis- 
 tances, and low rates for long distances, or to 
 charge two different rates for the same service if 
 they think it to their interest to do so; and not 
 only do they claim to exercise all these powers, but 
 they refuse to tell the public how they exercise 
 them or why they exercise them. The remedies 
 given by the canal and traffic act of 1854 niust, 
 under such circumstances, fail for want of the re- 
 quisite knowledge; and the recent act, by which 
 companies carrying goods are boimd, on appHca- 
 tion made within a week after payment, to give 
 an account distinguishing between rates for con- 
 veyance and terminal charges, is wholly useless, 
 because, in the first place, the trader is practically 
 unable to enforce the law against the rich and 
 powerful company; in the second place, he wants 
 to know what he has to pay before paying it, and 
 also what his neighbors and rivals are paying ; and 
 in the third place, because the companies do not 
 themselves distinguish accurately between ter- 
 minal charges and mileage, and, when an inquiry 
 is made, can give only an approximate answer." 
 Upon the question whether the interest of the 
 public and that of the companies are identical, in 
 the same sense that they are in the case of a private 
 trader, the committee say that "it must not
 
 English Legislation 83 
 
 be hastily assumed that self-interest will play the 
 same part in these large undertakings which it 
 plays in ordinary trading concerns. There is a 
 powerful bureaucracy of directors and officers. 
 The real managers are far removed from the 
 influence of the shareholders, and the latter are, to 
 a great extent, a fluctuating and helpless body. 
 The history of railway enterprise shows how fre- 
 quently their interests have been sacrificed to the 
 policy, the speculations, or the passions of the real 
 managers. On the other hand, the directors and 
 principal officers of these great undertakings are 
 often men of high standing, who feel that their 
 position is something different from that of mere 
 managers of a trading concern, and become in a 
 certain sense amenable to public opinion, and es- 
 pecially to its expression in Parliament. Thus for 
 good as well as for evil the management of railways 
 differs from that of an ordinary trade or manufact- 
 ure, and approximates in some degree to the busi- 
 ness of a public department. " And as a summary 
 of the history of legislation preceding the sessions 
 of the committee, they state "that committees 
 and commissions carefully chosen have for the last 
 thirty years clung to one form of competition 
 after another, but that it has nevertheless become 
 more and more evident that competition must fail 
 to do for railways what it does for ordinary trade, 
 and that no means have yet been devised by which 
 competition can be permanently maintained. " 
 This report, made under a liberal government,
 
 S4 Railways in the United States 
 
 and one which was, therefore, considerably under 
 the influence of the very men who opposed all 
 interference with railways on the ground that 
 such interference was, in one form or another, a 
 violation of the principles of free trade, marked a 
 complete change of the views of the leading politi- 
 cal thinkers of England. Even Mr. Bright no 
 longer opposed the formation of a railway com- 
 mission. Experience had taught the English 
 people that in many departments of human 
 activity the doctrine of non-interference of govern- 
 ment would not apply, and not only were railways 
 rapidly being subjected to governmental super- 
 vision and control, but also factories, merchant 
 shipping, and other industrial manifestations. The 
 report of the railway committee of 1872 resulted in 
 the law of 1873, creating the tribunal recommended 
 by the commission. The gentlemen appointed by 
 the crown under this commission were Sir Fred- 
 erick Peel (the second son of Sir Robert Peel), 
 Mr. William Phillip Price, who was for many 
 years the chairman of the Midland Railway Com- 
 pany, and Mr. Macnamara, who held the position 
 until 1877 (the time of his death), when his place 
 was filled by the appointment of Mr. Alexander 
 Edward Miller. Mr. Balfour Browne became the 
 registrar of the railway commission. A large num- 
 ber of cases were brought before the commission, 
 which were promptly and ably dealt with. 
 
 The commission was originally appointed for 
 five years. During those five years the railroad
 
 English Legislation 85 
 
 companies tried two different methods of dis- 
 crediting the commission. One method was, by- 
 carrying cases up on appeal, to show that the 
 commission acted arbitrarily and against law; the 
 other was, to avoid as much as possible resort to 
 the commission by complying with all the laws, 
 and settling cases before they could be brought to 
 the commission's attention. By the one course 
 they tried to prove that the commission was 
 composed of men not well qualified for the work, 
 and by the other, that it was superfluous. In 
 both attempts they signally failed. The cases 
 carried up by them on appeal were generally 
 affirmed in favor of the commission, and the fact 
 that the fear of the railway commission induced 
 the railway companies to behave with proper 
 regard for the laws which constituted them, and 
 in the interest of the public, did not prove that 
 the rod was superfluous by reason of it not being 
 necessary to apply it, but proved that the very 
 existence of the commission had a wholesome 
 effect upon the railway companies. In 1878, 
 therefore, notwithstanding the efforts of the rail- 
 way corporations, and more especially the strenu- 
 ous opposition of Sir Daniel Gooch, chairman of 
 the Great Western Railway, the commission was 
 reconstituted by an act enlarging its powers, and 
 the same commissioners were continued in office. 
 The railway commission is now [1883] a permanent 
 tribunal of the English judicial and administrative 
 system, and will in all probability be made, within
 
 86 Railways in the United States 
 
 a very short period, one of the branches of the 
 supreme court of judicature, with the power of 
 appeal limited so as to avoid the expensiveness of 
 protracted litigation, ruinous in England to a 
 private litigant, against the practically illimitable 
 purse of a great corporation such as the London & 
 North Western or London & Midland Railway. 
 
 With the appointment of the commission of 
 1873, the English railway system entered upon a 
 new phase. A proposition of the ownership by 
 the state of the railways of England, which twenty 
 years ago [i860], was almost looked upon as 
 chimerical, is now regarded as a very possible, and 
 will very soon be regarded as a very probable con- 
 tingency. The amalgamations which have been 
 going on have somewhat facilitated this possible 
 acquisition by the state. Lord Derby, in a dis- 
 cussion of that subject at a meeting of the Society 
 of Arts in 1873, stated that he had not the slightest 
 doubt, that, if the public really wanted the rail- 
 ways purchased by the state, it could be done, and 
 the question of price would not present an insuper- 
 able difficulty. The first step in that direction 
 has already been taken in England by the purchase 
 of the telegraph lines and adding that service to 
 the postal department of the government. 
 
 Mr. Joseph Parsloe, in a monograph on the 
 railways, says upon this subject, after weighing 
 the arguments pro and con as to state purchase: 
 that "an endeavor has been made to show that 
 enormous benefits would accrue from the manage-
 
 English Legislation 87 
 
 ment of railways by the state. At the same time 
 it should be only after the very fullest considera- 
 tion of the question, in all its multitudinous 
 bearings, that such a change in working the 
 system should be introduced. It has been a com- 
 mon practice on the part of some critics to char- 
 acterize as visionaries any who have urged the 
 adoption of a scheme of state purchase; or the 
 ability to form a correct judgment upon the matter 
 has been questioned. For the most part such 
 criticism has originated with those interested in 
 keeping things as they are, and who, while ques- 
 tioning the usefulness of one proposal, have not 
 been prepared with any other to put in its place. 
 It will scarcely be questioned that our railways 
 have in them the material from which it is possible 
 to obtain a much larger amount of national benefit 
 than is now derived. What remains to be done is, 
 that the best means shall be adopted for the 
 attainment of the greatest public good, and if any 
 plan preferable to state management can be 
 devised, it will doubtless be received with satis- 
 faction." He himself seems to be doubtful as to 
 whether any such plan can be devised. 
 
 One of the dangers apprehended by the oppo- 
 nents of state interference in England was, that 
 in the creation of a special tribunal to supervise 
 railway administration the individual shareholder 
 would be injured. The very opposite has been 
 the result. Apart from the fact that from 1873 
 there was considerable additional activity in the
 
 88 Railways in the United States 
 
 commerce of England, a great general rise in the 
 value of railway securities has taken place since 
 that time, not entirely attributable to the increased 
 activity of trade and commerce, but due in great 
 part to the fact that in England, as in all other 
 countries where private administrations were freed 
 from the direct supervision of the state, the 
 indirect and comparatively remote supervision 
 exercised by the shareholders over the corporate 
 managers was not sufficient to insure the most 
 economical and wisest administration. Special 
 interests of railway directors would interfere with 
 the administration, would cause the building of 
 loop lines for the purpose of benefiting special 
 local investments by them and their friends, and 
 even the management of English railways is not 
 entirely free from jobbery to benefit members of 
 the boards of direction. The supervision of the 
 state has made this so difficult and almost impos- 
 sible that the administration of those trusts has 
 sensibly and visibly improved. No interest has 
 reaped a larger benefit, not even the public, than 
 the shareholder himself, from the reversal of the 
 policy of the English Government. Greater cer- 
 tainty and publicity of railway charges, and the 
 system of interchange of traffic, facilitated and 
 enforced by the railway commission, have been 
 of as great a benefit to the stockholder, on the one 
 hand, as the holding of boards of direction to a 
 rigid amenability to the public has been of benefit, 
 on the other hand, to the people.
 
 CHAPTER II 
 
 Legislation Concerning and Management of 
 Railways in the United States 
 
 absence of governmental supervision 
 
 After the passage by the State of New York, in 
 1850, of its general railway act (see the preceding 
 chapter) there was inaugurated in the United 
 States a deliberate withdrawal of governmental 
 supervision from railway enterprises, on the theory 
 that they were private businesses, to be left 
 as unrestricted as the manufacture of boots or 
 clothing. 
 
 The New York law, with but slight modifica- 
 tions, was enacted by the various States, so as to 
 promote railway building, and also to remove the 
 corrupting tendency of special railway legislation. 
 When each railway corporation was the recipient 
 of a special grant by legislative enactment, the 
 railways, in consequence of the large interests 
 involved, corrupted the members of the legislature, 
 and it was honestly supposed that by permitting 
 everybody to build railways the principle of com- 
 petition would be applicable. It was argued that 
 there could be no such thing as monopoly in 
 
 89
 
 90 Railways in the United States 
 
 matters free to all, and that the rivalry between 
 the respective lines for business would create, as 
 to railway administration and railway manage- 
 ment, the same beneficial results that rivalry and 
 competition create in other private enterprises. 
 The rapid development of the country from 1850 
 to 1857, under the low tariff, good crops, and gen- 
 eral confidence, in connection with the rapid 
 development of the railway system, prevented, 
 down to that period of time, any evil effects aris- 
 ing from this absence of control from becoming 
 apparent. Though some few evil consequences 
 did come to the surface, yet these were so largely 
 counteracted by the beneficial results of railway 
 construction that the community regarded them 
 as but passing vexatious incidents to a great 
 benefit, and thought that time would cure the evil. 
 
 RAILWAY REORGANIZATION COMMITTEES 
 
 When, in consequence of the financial crisis of 
 1857, many of the railways became embarrassed 
 and mortgages were foreclosed, a new device was 
 concocted, which at the outset appeared conserva- 
 tive and innocent enough, but brought in its train 
 evil consequences of considerable magnitude in 
 the relation of the railway to the state. These 
 foreclosures, if carried out rigorously, threatened 
 to destroy the value of all junior mortgages and of 
 railway stock. The junior mortgagees and the 
 stockholders thereupon fought desperately in the
 
 Reorganization Committees 91 
 
 courts, to delay as much as possible the right of 
 the holders of the bonds under the first mortgage 
 either to take possession of the railway, or, by a 
 sale under the hammer, to cut out all equities 
 beyond the first mortgage, in the hope that such 
 delay would tide the road over into better times. 
 To bridge over these difficulties, and to prevent 
 such delays, railway lawyers devised a scheme of 
 reorganization committees, to represent in the 
 reorganization of railways all the rights existing 
 with reference to the property at the time of the 
 insolvency, and on their behalf to repurchase the 
 property, and, by a new capitalization, to readjust 
 these rights. Under the reorganization the first 
 mortgage holders received new bonds representing 
 again a first lien, and certificates or bonds to repre- 
 sent accrued interest; the junior mortgages were 
 again recognized by junior liens or preferred stock ; 
 and the stockholders generally, on condition of 
 making some payment toward defraying the 
 expenses of the readjustment and putting the line 
 in proper condition, received scrip or stock to re- 
 present their former interests in the roads. Bank- 
 ruptcies, therefore, did not, after this device was 
 generally adopted, produce as to railways the 
 same result in the way of the destruction of 
 fictitious value that they produce by failure in 
 other departments of business, i.e., to transfer the 
 commodities or property, by means of such a sale 
 or title, at bottom or conservative figures ; but, on 
 the contrary, the stock and bond capital of the
 
 92 Railways in the United States 
 
 corporations which had emerged from insolvency 
 came to the surface with a larger capitalization 
 than before default, with no construction to 
 balance the additional capitalization account. 
 Therefore, to enable the corporation to pay, in 
 addition to operating expenses, interest upon its 
 stock, the directors were under the strongest 
 incentive, and even necessity, to oppress, at non- 
 competitive points, the territory where the rail- 
 ways had a monopoly power. 
 
 The courts lent themselves readily to this new 
 device of reorganization, because it appeared to be 
 conservative of vested rights of property, and 
 prevented waste and destruction. The possible 
 influence of these devices upon the future develop- 
 ment of the railway system in its relations to the 
 state and the people was either not thought of or 
 disregarded. 
 
 From 1857 to i860 many insolvent railways 
 were reconstructed upon this plan, and at the 
 end of this reconstruction period these railways 
 emerged with a considerable additional capitaliza- 
 tion, representing simply accumulated debt. In 
 1 86 1 the war broke out, severing the lines running 
 north and south, and in consequence of the opera- 
 tions of the government and the increased and 
 feverish activity of the country during the four 
 years of the war, the trunk lines running east and 
 west were greatly developed. It was during this 
 period of the war that Congress began, upon an 
 extensive scale, to charter the transcontinental
 
 Subsidies 93 
 
 lines of rail so as to connect the Pacific coast with 
 the East. 
 
 GOVERNMENTAL SUBSIDIES 
 
 The charter of the Union Pacific Railroad was 
 passed July i, 1862. Under this charter the right 
 of way, and a subsidy of land and of Imoney, were 
 granted. By the act of July 2, 1864, the govern- 
 mental subsidy was greatly increased. Land to the 
 amount of five alternative sections per mile on 
 each side of the road was granted to the railway. 
 The Secretary of the Treasury was required, upon 
 a certificate of the commissioners, showing the 
 completion and equipment of forty consecutive 
 miles of railroad and telegraph lines, to issue to the 
 company bonds of the United States, of $1000 
 each, to the amount of $16,000 per mile; and as to 
 the 150 miles westwardly from the eastern base of 
 the Rocky Mountains, and 150 miles eastwardly 
 from the western base of the Sierra Nevada Moun- 
 tains, $48,000 per mile, and between the two 
 mountain chains $32,000 per mile. The Central 
 Pacific Railroad, chartered under the laws of the 
 State of California, was taken care of in the same 
 manner. A like amount of land was granted to it, 
 and a like sum of money subsidy. These were 
 not, however, the only grants made by Congress 
 in this act. The Hannibal & St. Joseph Railroad, 
 the Leavenworth, Pawnee & Western Railroad, 
 and the Kansas Pacific Railroad became the recipi-
 
 94 Railways in the United States 
 
 ents of sections of land and subsidies of bonds. 
 The Burlington & Missouri Railroad was also the 
 recipient of a land grant. 
 
 The act of 1862 gave to the government of the 
 United States, in return for the subsidy, a first 
 mortgage upon the railway property to be created 
 by the Union and Central Pacific railroads. The 
 act of 1864 allowed the corporation to postpone 
 the government's lien by a first mortgage to an 
 amount equivalent to the subsidy given by the 
 United States, and made the lien of the United 
 States for its money subsidy subordinate to that 
 of the bonds of the companies issued under such 
 first mortgage. About $65,000,000 was thus given 
 to these corporations, in addition to their valuable 
 land grants, and the lien of the government post- 
 poned to that of another mortgage, authorized to 
 be issued for an equal amount. The Union Pacific 
 Railroad was thereupon constructed by an organiza- 
 tion known as the credit mohilier, composed, as to 
 persons interested therein, mainly of the persons 
 who were instrumental in procuring the passage of 
 the act, and who were the real incorporators of the 
 road. To this corporation all the issues of bonds 
 and stock were made, and it also was the recipient 
 of the subsidy of the United States after building 
 and equipping certain parts of the road. It 
 proved an instrumentality of distribution of profits 
 under the cover of building the road. 
 
 The grants of land to the Union Pacific Railroad 
 amounted to 2,000,000 acres; to the Kansas Pacific,
 
 Subsidies 95 
 
 6,000,000 acres ; to the Central Pacific, as successor 
 of the Western Pacific, 1,100,000 acres; to the 
 Burlington & Missouri River, and to the Sioux 
 City & Pacific, 2,500,000 acres. 
 
 On July 2, 1864, the Northern Pacific Railroad 
 was also incorporated, and although no money 
 subsidy was given to that corporation, it was the 
 recipient of the largest land grant of any of the 
 corporations, being entitled to receive under its 
 grant 47,000,000 acres. By the act of July 2^], 
 1866, there was granted to the Oregon branch of 
 the Central Pacific 3,000,000 acres; to the Oregon 
 & California Railroad 3,500,000; to the Southern 
 Pacific, 6,000,000; and to the Southern Pacific 
 branch line 3,500,000 acres. A considerable pro- 
 portion of this acreage may be saved to the people 
 by the failure of many of these railway companies 
 to complete their lines within the time specified by 
 the acts of incorporation. But these grants show 
 with how liberal a hand the Congress of the United 
 States disposed of the public domain in favor of 
 these corporations, to aid them in the construction 
 of their lines. 
 
 During the same period of time large grants of 
 land, owned by the general government within 
 the States, were made by Congress to the States, 
 for the purpose of enabling such States to make 
 large land grants to the railways proposed to be 
 built within their borders. As early as 1850, 
 about 2,500,000 acres were granted to the State of 
 Illinois, and by it granted to the Illinois Central
 
 96 Railways in the United States 
 
 Railroad, mainly, to aid in its construction. In 
 1856 Florida received grants of land amounting to 
 about 2,000,000 acres, which Florida, in turn, 
 transferred in great part to the Florida Railroad 
 and the Florida & Alabama Railroad. Arkansas 
 was the recipient of more than 2,000,000 acres, 
 which it, in turn, transferred almost wholly to 
 railways. Minnesota, Kansas, Wisconsin, Michi- 
 gan, and Iowa were all the recipients of large grants 
 of land, from which these States endowed railway 
 corporations by heavy grants of land. The terri- 
 tory of the United States appeared to the legislator 
 of that period an inexhaustible fund of land, and 
 millions of acres were given away with what now 
 appears to be reckless extravagance. Long anter- 
 ior to these munificences on the part of the general 
 government, some of the States were called upon 
 to aid, by actual grants of money, some of the 
 railways which were built within their borders. 
 The State of New York paid to the various railroad 
 corporations within its borders about $8,000,000, 
 of which about $5,000,000, granted to the Erie 
 Railroad Company, was wholly lost, and granted 
 about $30,000,000 in municipal and county sub- 
 scriptions. 
 
 RIGHT OF GOVERNMENT TO REGULATE RAILWAYS 
 
 The right of the United States to charter railway 
 corporations was exercised under the power given 
 to it by the Constitution "to regulate commerce
 
 Trunk Lines 97 
 
 with foreign nations and among the several States 
 and the Indian tribes, to estabHsh post-offices and 
 post-roads," and also under the general authority 
 to execute all powers vested by the Constitution 
 in the government of the United States, and like- 
 wise under the authority given to Congress to 
 provide for organizing the army. 
 
 The lines of the Pacific roads were constituted 
 post-roads, as they necessarily carried on the func- 
 tion of interstate commerce ; and, as they were re- 
 quired to carry the army and army supplies of the 
 United States, the establishment of these corpora- 
 tions as United States corporations is warranted 
 under a liberal construction of the Constitu- 
 tion, As these corporations have been the recipi- 
 ents of immense gifts of property from the general 
 government, and as the latter is in nowise restricted 
 by the prohibition as to impairing obligation of 
 contracts, these beneficiaries can not possibly make 
 any valid claim against being subjected to regula- 
 tion, even if such regulation be in the nature of 
 afterthoughts on the part of the United States 
 Government in the interest of the people of the 
 country. 
 
 ORGANIZATION OF TRUNK LINES 
 
 The system of through lines, now known as 
 
 trunk lines, developed between 1868 and 1872. 
 
 The Lake Shore road passed under the control of 
 
 the Vanderbilt interest, and there was no longer 
 
 7
 
 98 Railways in the United States 
 
 any necessity to break bulk as far as Toledo. The 
 Michigan Southern and Michigan Central likewise 
 passed under the same control, and through lines 
 were established to Chicago, although the several 
 railways remained state organizations, and were 
 never consolidated as one company. The Penn- 
 sylvania Railroad, under the name of the Pennsyl- 
 vania Company, leased the Fort Wayne road in 
 June, 1869; the Erie & Pittsburg, in March, 1870; 
 the Columbus, Chicago & IndianapoHs, in Febru- 
 ary, 1870; the Little Miami road from Columbus 
 to Cincinnati, Hkewise, in February, 1870, and 
 the Cleveland & Pittsburg road, in 1871. These, 
 together with the Ohio, Madison & Indianapolis 
 Railroad, and the Cincinnati, Wilmington & 
 Zanesville Railroad, gave to the Pennsylvania 
 line practically two lines to Chicago and one 
 to Cincinnati during the same period. The 
 Baltimore & Ohio road was opened to the Ohio 
 River in 1852; it leased the Central Ohio road 
 in 1872, and then built an independent line 
 to Chicago in 1874, completing its through con- 
 nection to Chicago. The Grand Tnmk Rail- 
 way, by controlling and leasing other lines and 
 building links, pushed its connection at about 
 the same period through to Chicago, so that 
 there were substantially, from the seaboard to 
 Chicago, five trunk lines vying with each other 
 for business for the West from the time these 
 trunk lines pushed their connections on to Indian- 
 apolis and St. Louis.
 
 Fast Freight 99 
 
 FAST FREIGHT LINES 
 
 Prior to completing the organization of these 
 trunk Hnes, freight was compelled to break bulk 
 and suffer transshipment at the end of each State 
 line, where a new corporation took up the traffic 
 and carried it beyond. To prevent this breaking 
 of bulk, and to expedite the carriage of freight, 
 fast freight lines on separate capitalizations were 
 organized, at first by the managers of the railways 
 themselves owning or leasing their freight cars, 
 and then made profitable by special arrangements 
 with the railways readily enough secured, because 
 of the fact that the railway officials themselves 
 were largely interested in the fast freight lines. 
 These lines carried a considerable proportion of 
 the traffic in the period anterior to the organization 
 of the trunk roads. With the completion of the 
 trunk line west came also a change in the organiza- 
 tion of the fast freight lines. The managers of 
 the railways became more largely interested in the 
 success of their trunk organizations than in the 
 subsidiary lines that were absorbing a consider- 
 able proportion of the business of the roads. These 
 subsidiary lines were therefore broken up, and 
 the private corporations abandoned, and each of 
 the various railroad corporations constituting the 
 trunk lines, in the proportion of the percentage 
 of traffic carried over their roads, as nearly as that 
 could be ascertained, contributed freight cars to 
 the formation of fast freight lines intended to
 
 100 Railways in the United States 
 
 carry through traffic. Thus a great reduction in 
 the cost and an increase in the speed with which 
 goods were carried were introduced, and it is now 
 no longer necessary to break bulk at various points, 
 but goods can be shipped to their terminus by 
 either of the trunk lines through the instrumental- 
 ity of fast freight lines connected with them. 
 
 From the fact that a large portion of the business 
 of the roads was thereupon done by these fast 
 freight lines, and that these fast freight lines were 
 represented by an independent organization or 
 staff of officers and agents, it was supposed by the 
 public that these lines were barnacles fastened 
 upon the railway companies for the purpose of 
 abstracting from them, to the advantage of the 
 managers and to the detriment of the shareholders, 
 a large proportion of their traffic. 
 
 Although this suspicion was well founded in the 
 early history of the fast freight lines, it ceased 
 to be true after the organization of the trunk line 
 system. A peculiar result, however, arose from the 
 existence of the fast freight lines as an independent 
 organization. In consequence of the freedom of 
 the freight agent of the fast freight lines from the 
 direct control of the trunk managers of the rail- 
 roads, the railroad companies themselves found it 
 almost impossible to fix a rate of freight which 
 would not, in the intense desire to gain traffic, be 
 immediately cut by the fast freight lines doing busi- 
 ness over their roads. Thus, contemporaneously 
 with agreements between the trunk line organiza-
 
 Panic of 1873 loi 
 
 tions to maintain rates, an active rivalry was kept 
 up in the rates charged by the railroad corporations 
 themselves and by the fast freight lines which ran 
 over the roads and belonged to them. 
 
 INSOLVENCY OF RAILWAYS IN THE PANIC OF 1 873 
 
 The pool agreement, to which reference will 
 presently be made, removed this difficulty. The 
 financial crisis of 1873, like that of 1857, caused 
 the insolvency of a large number of railroad cor- 
 porations, and the same proceedings which resulted 
 in the emerging from bankruptcy of the railroad 
 corporations that became insolvent in the preced- 
 ing crisis, followed the insolvency of the railroad 
 corporations in 1873, by which reconstruction 
 committees were appointed. The various cor- 
 porations emerged after insolvency through this 
 process of reconstruction with capitalizations of 
 funded debt and stock capital generally larger 
 than that with which they entered into this condi- 
 tion of insolvency, and without any additional 
 road or construction to account for the increase. 
 
 The general depression of trade and the failure 
 of crops succeeding the crisis of 1873, and the 
 struggle for business between the roads, caused 
 them to carry through traffic to the east at very 
 low rates, for which they sought to compensate 
 themselves by excessive charges for local traffic. 
 This produced in the western States a very general 
 feeling of dissatisfaction with railway methods and
 
 102 Railways in the United States 
 
 railway management, and gave rise to what is 
 known as the Granger movement. 
 
 RAILROAD GRANTS AND SUBSIDIES IN WESTERN 
 
 STATES 
 
 The western States were more liberal than the 
 eastern States in grants of land and money to rail- 
 road corporations. From i860 to 1870 these 
 railroad corporations not only obtained large do- 
 nations of land, but counties, townships, cities, 
 and villages desirous to become connected with the 
 network of railways of the United States, and to 
 be brought into active communication with the 
 movement of commerce throughout the country, 
 vied with each other in debt accumulation for the 
 purpose of granting subsidies to railways. A large 
 proportion of the whole bonded municipal in- 
 debtedness of the United States is due to what 
 may be termed the frenzy on that subject. This 
 recklessness of debt creation for the purpose of 
 obtaining railway commtinications has some degree 
 of justification in far western States which it would 
 not have had in any community otherwise situated. 
 France, England, and Germany, and also the sea- 
 board and middle States of the United States, had, 
 prior to the existence of the railway, good means 
 of intercommimication by canals and highways. 
 But, in the far western States, the railway was 
 practically the only road. The western counties, 
 townships, and cities regarded the expenditures on
 
 Granger Movement 103 
 
 railways as something analogous or equivalent to 
 expenditures on the ordinary roads, and much of 
 this debt creation was fostered by the influences 
 of the railway corporations themselves, and a 
 great part of it was doubtless fraudulently con- 
 tracted through the bribing of local officers. In 
 many cases the railways obtained subsidies of 
 bonds, which they sold, and never built the rail- 
 ways. A large number of litigations, on the ques- 
 tion of the liability of the public bodies granting 
 such subsidy bonds, arose in the States themselves, 
 and many of these were disposed of in the United 
 States courts. The innocent holders of these bonds 
 sought to obtain judgment against counties or 
 towns, which, either failing to obtain the considera- 
 tion for which the bonds were issued, or discovering 
 that the bonds were fraudulently issued, or from 
 the mere desire to repudiate the burden imposed 
 by the issue, sought to escape from the payment 
 of the principal, or the levying of a tax to pay the 
 interest. In a great number of these cases the 
 decision of the Supreme Court of the United States 
 was favorable to the bondholders, and the burden 
 once imposed was allowed to rest, however reck- 
 lessly or extravagantly the bonds were issued, and 
 the burdens assumed. 
 
 GRANGER LEGISLATION 
 
 The extent of this indebtedness, however, added 
 fuel to the spread of the Granger agitation. The
 
 104 Railways in the United States 
 
 heavy local taxation reminded the farmer or local 
 tradesman of the aid which he assisted in giving 
 and was called upon to pay to the railway; at the 
 same time, the railway, which he supposed would 
 confer upon him a great benefit, was placing his 
 particular locality at a disadvantage by carrying 
 past his door to more distant points and to the 
 seaboard freight at rates very much lower than he 
 was charged as local rates, the reason being simply 
 that the more distant point was a competitive 
 point, and he was entirely at the mercy of a single 
 railroad corporation. 
 
 The western farmer's efforts to seek relief from 
 this condition of affairs would have met with very- 
 considerable obstruction had he not been aided by 
 the wording and language of the constitutions of 
 the several States, which enabled him to avoid 
 any contract relation being successfully established 
 between the State and the railroad corporation by 
 reason of its original charter. 
 
 In the Dartmouth College case it was decided 
 by the Supreme Court of the United States, in 1 819, 
 that, by the legislative charter to a private cor- 
 poration, a contract relation was created, which, 
 under the clause prohibiting the States from impair- 
 ing the obligation of contracts, forbade the State 
 from thereafter passing laws substantially chang- 
 ing property rights of such corporation. The 
 various States of the Union took alarm at the 
 possible consequences of that decision, and, either 
 by general laws or by constitutional amendment,
 
 Granger Movement 105 
 
 provided that the legislature should, at all times, 
 be at liberty to alter, amend, or repeal the rights 
 or privileges conferred upon corporations. 
 
 The State of New York, after having had for 
 many years a provision to that effect upon its 
 statute books, embodied, in 1846, such a provision 
 in its constitution ; and the western States, on their 
 organization, followed substantially the provision 
 of the constitution of New York. In obedience 
 to a strong public sentiment, which made itself 
 felt during 187 1-4 throughout the western terri- 
 tory, the legislatures of Iowa, Wisconsin, Illinois, 
 Ohio, Missouri, Minnesota, and Michigan passed 
 laws, known as Granger laws, by which railway 
 commissioners were appointed, railway tariffs 
 sought to be regulated, preferences forbidden, and 
 railways required to carry for the inhabitants of 
 a locality freight at a rate somewhat proportionate 
 to that which they established for through traffic. 
 
 This legislation was violently attacked in the 
 courts by the railways themselves, and the bond- 
 holders of the railways also called it in question 
 on the ground that such legislation impaired the 
 obligation of their contract, because, though it 
 left the rails and the cars, it substantially took 
 away the profit of operating, and thus, in disregard 
 of the constitutional provision that no private 
 property shall, without compensation, be taken 
 for public purposes, deprived them of property 
 without compensation. These cases came before 
 the Supreme Court of the United States in 1876,
 
 io6 Railways in the United States 
 
 in the test cases of Munn vs. Illinois, and Peake 
 vs. The Chicago, Burlington & Quincy Railroad. 
 This controversy was disposed of by the Supreme 
 Court of the United States adversely to the claim 
 of the railroads and of the bondholders, by uphold- 
 ing the validity and right of all such State legis- 
 lation. 
 
 Panic legislation of this character was, of course, 
 faulty. It proceeded from an insufficient exami- 
 nation of the whole subject. It was, in fact, 
 treating the symptom instead of the disease. 
 Notwithstanding the complete vindication, by 
 the Supreme Court of the United States, of the 
 right of the States to enact legislation laying down 
 tariff rates for railways, whether remunerative or 
 not, the majority of the States which had enacted 
 such legislation receded from their original posi- 
 tion and modified their tariff rates; many abro- 
 gated them, and contented themselves with the 
 establishment of railroad commissions for the 
 purpose of investigation and examination of 
 grievances, and to report thereon to the legisla- 
 tures, but left on the statute books, however, pro- 
 hibitions against preferences, and forbade the 
 railways from destroying the commerce and trade 
 of a locality by rival contests for through traffic. 
 
 RAILROAD COMMISSIONERS IN MASSACHUSETTS 
 
 In some of the eastern States, notably in Massa- 
 chusetts, a different course was pursued. In that
 
 Massachusetts' Experience 107 
 
 State an excellent Board of Railroad Commission- 
 ers was appointed by the act of the legislature of 
 1869, composed of Charles Francis Adams, Jr., 
 James C. Converse, and Edward Appleton. The 
 duty of these commissioners was to inspect the rail- 
 way system of the State, and to inquire into acci- 
 dents and the system of management, as well as the 
 general question of railroad development, and the 
 relation of the community to its railroad corpora- 
 tion. To entertain complaints of individuals or 
 localities against discriminations or unjust treat- 
 ment, and to report thereon, was also made part of 
 their duties. Authority was also given them to 
 hold public sessions, and to make report of their 
 conclusions to the legislature. They had no judi- 
 cial powers, but were constituted a general board 
 for public investigation of railway management, 
 thus to draw pubHc attention to, and to bring to 
 bear public opinion upon, the subject. To concen- 
 trate responsibility, to sift information, and to 
 advise the legislature, also appertained to their 
 functions. They were subsequently empowered 
 to prescribe and enforce, and they did prescribe 
 and enforce, a uniform system of accounts. 
 
 This board has been in successful operation 
 since its organization ; and has been of great bene- 
 fit to the commonwealth which appointed it, and 
 of great service as an example, beneficially imi- 
 tated by other States, of one of the most conser- 
 vative modes of dealing with railroad corporations. 
 
 Mr. Charles Francis Adams, Jr., the chairman
 
 io8 Railways in the United States 
 
 of this commission, in an argument before a com- 
 mittee of the Federal Congress in 1880, in speaking 
 of raikoad management and its relation to the 
 public, says: 
 
 "I must ask you to dismiss all preconceptions 
 from your minds, and to fairly consider what is the 
 real cause of the inequaUty, the injustice, the dis- 
 criminations of the existing railroad service, those 
 ills of the body politic for which you are now under- 
 taking to prescribe. I will not stop to dwell upon 
 them or to denounce them. It is not necessary to 
 do so, for I hold them to be proven and their exist- 
 ence notorious. The record is full of evidence 
 on the subject. We all know, every one knows, 
 that discriminations in railroad treatment and 
 charges do exist between individuals and between 
 places. We all know that railroad tariffs fluctuate 
 wildly, not only in different years, but in different 
 seasons of the same year. We know that certain 
 large business firms, the leviathans of modem 
 trade, can and do dictate their own terms between 
 rival corporations, while the small concern must 
 accept the best terms it can get. It is beyond dis- 
 pute that business is carried hither and thither — 
 to this point, away from that point, and through 
 the other point — ^not because it would naturally go 
 to, away from, or through those points, but because 
 the rates are made on an artificial basis to serve 
 ulterior ends. In regard to these things, I consider 
 the existing system nearly as bad as any system 
 can be. Studying its operations as I have, long
 
 Massachusetts' Experience 109 
 
 and patiently, I am ready to repeat now what I 
 have repeatedly said before, that the most surpris- 
 ing thing about it to me is, that the business com- 
 munity sustains itself under such conditions. The 
 first principles of law governing common carriers 
 are habitually violated. Special contracts cover- 
 ing long periods of time are made every day with 
 heavy shippers, under which the common carrier, 
 whose first duty it is to serve all equally, gives to 
 certain parties a practical control of the markets. 
 There is thus neither equality nor system, law nor 
 equity, in the matter of railroad charges. A com- 
 plete change in this respect is a condition precedent 
 to any just and equitable system of railroad trans- 
 portation." 
 
 Coming as they do from a gentleman of high 
 authority, who for ten years held the position of 
 Chairman of the Railroad Commission of the State 
 of Massachusetts, and who at the time when he 
 spoke had held for one year the position of arbi- 
 trator, selected by the great trunk lines to settle 
 disputes and differences between them as one of 
 a court of three arbitrators voluntarily constituted, 
 these words are more cogent, and are to be assumed 
 as a more correct representation of existing con- 
 ditions [in 1884] resulting from the development 
 of the railroad system of the United States, than 
 any speech, either of granger suffering from his 
 particular grievance, or of railway president 
 anxious to retain his hold upon a monopoly 
 interest.
 
 no Railways in the United States 
 
 The attempt to enforce upon the railways of the 
 State of Massachusetts the adoption of a system 
 of accounts prepared by a set of "theorists," was 
 vehemently opposed by the railway corporations, 
 who called it an infringement of their chartered 
 rights, which would prove a mere appliance for 
 exacting blackmail, and expose details of manage- 
 ment concerning which the public had no interest. 
 The commissioners, on the other hand, insisted 
 that the community had an interest in its railroad 
 lines, and that an administration which was a mere 
 hot-bed of abuses should be thereafter managed 
 in full public view. To the new system of accounts 
 prescribed, the railways quickly accommodated 
 themselves, and, much to their surprise, they 
 experienced no evil result from rendering accounts 
 intelHgible to pubHc bodies and to the public at 
 large, but rather found great benefit to flow there- 
 from. 
 
 The instances of the failure of the Eastern Rail- 
 road Company, the sudden collapse of the New 
 Jersey Central and of the Reading railroads, show 
 how utterly unable was the public to form, from 
 the published accounts in annual reports, any 
 adequate conception of the condition of railroad 
 property. In each of these cases the annual report 
 preceding the insolvency claimed the roads to 
 be financially in flourishing condition. Against 
 such abuses as these, the system of uniform ac- 
 counts and thorough investigation seems to be a 
 specific. On this subject and its success, the
 
 Massachusetts' Experience iii 
 
 Massachusetts commissioners, in their report for 
 1879, draw a very correct Hne of distinction. In 
 speaking of the spirit which called forth an inves- 
 tigating board such as the Massachusetts commis- 
 sioners, and that which prescribed a hard and fast 
 tariff of rates for railway companies such as 
 granger legislation attempted, they say : 
 
 "After a careful investigation, which extended 
 through a year, and the conclusions of which are 
 to be found in its earlier reports, this board wholly 
 rejected the idea of attempting to regulate rail- 
 roads in this country, at least through direct 
 legislative intervention. It was said that such 
 an attempt would result only in failure, or perhaps 
 generate new and dangerous abuses of its own. 
 The board, on the contrary, maintained that every 
 desired result or needed reform could be secured 
 by simply developing in the public mind the idea 
 of corporate responsibility, and supplying the 
 necessary machinery to act directly upon it. To 
 bring this about, it was necessary to force the 
 corporate proceedings into the full light of pub- 
 licity, and to compel those responsible for railroad 
 management, whenever an abuse was alleged, to 
 submit to investigation, and to try to show that 
 the abuse did not exist. Failing to do this, their 
 only alternative was to discontinue its practice 
 or to persist in it in open defiance of public opinion. 
 This is the theory of railroad regiilation now known 
 as the commissioners' system, in contradistinction 
 to the granger system. The public supervision of
 
 112 Railways in the United States 
 
 the accounts of the railroad corporations is an 
 essential feature in the successful development of 
 this theory. If that can be established, it will 
 certainly lead to the gradual abandonment of the 
 granger system in favor of a supervisory system. 
 The commissioners believe that it has been estab- 
 lished in the practical experience of the Massa- 
 chusetts railroads in the last two years, and they 
 further beHeve and say that the system works 
 well." — (Massachusetts Railroad Commissioner's 
 Report, 1879, pp. 29, 30.) 
 
 NEW York's efforts to curb the railway 
 
 POWER 
 
 In New York State the Board of Trade and 
 Transportation, a body originally organized under 
 the title of "The Cheap Transportation Associa- 
 tion," set itself the task, in 1873, of bringing the 
 railway corporations of the State of New York 
 to public amenabiHty. From 1850 down to that 
 period, no serious attempt had been made in that 
 State to create in railroad management any sense 
 of pubHc responsibiUty. The reports which the 
 various railroad corporations of the State were 
 required to file with the State Surveyor and 
 Engineer, were almost wholly meaningless. No bal- 
 ance sheet accompanied the reports, and the rail- 
 road corporations, in conforming with the letter 
 of the law, vied with each other in giving as Httle 
 information as possible. The State Surveyor had
 
 New York's Experience 113 
 
 neither power nor desire to make any independent 
 investigation. He simply published from year to 
 year such information as the railway corporations 
 saw fit to give him. No penalty, which had the 
 slightest deterring influence, was imposed for 
 giving insufficient or even false information. The 
 State law forbade parallel lines from being leased 
 to each other. Nevertheless, railroad corporations, 
 by purchasing the majority of the stock of the 
 parallel lines, ran them in the interest of their 
 main railroads. 
 
 In 1868 a consolidation took place between the 
 New York Central and the Hudson River railroads 
 by which they subsequently became one line. On 
 the consummation of the consolidation new stock 
 was issued, substantially doubling the capital, or, 
 in other words, watering the stock, of both lines. 
 This watering of stock was promptly legalized by 
 the legislature of the following year, which con- 
 ferred authority for exchanging the certificates into 
 shares of stock. Thus, these roads in their new 
 capitalization neutralized all the advantages they 
 had of easier gradient and no mountains to pass 
 over, which had given to New York State cheaper 
 railway construction than to Pennsylvania and 
 Maryland. Although during the summer months, 
 when canal competition is active, or under circum- 
 stances when the competition for through traffic 
 with other roads creates a strife, capitalization is 
 of little or no consequence, yet, on the local traffic, 
 capitalization produces the result of compelling
 
 114 Railways in the United States 
 
 the local shipper to pay such a rate as to make it 
 possible for the proprietors of the road to pay- 
 dividends on their stock. By the general railroad 
 laws of the State of New York it is provided, that 
 when the dividends of any railroad corporation 
 shall reach lo per cent., the State can declare how 
 the surplus above the lo per cent, shall be applied. 
 This provision, however, was made quite nugatory 
 by the trick of stock watering. It is clear, if with 
 each increased valuation of the road the pro- 
 prietors can declare stock dividends not repre- 
 senting construction account, that a dividend of 
 10 per cent, on stock will never be declared, 
 although in point of fact the railway may be 
 earning 20 or 30 per cent, upon its actual cost of 
 construction. 
 
 This bold stroke of financial policy, which laid 
 the foundation for the colossal wealth of the Van- 
 derbilts, drew attention to this evil, and gave to 
 the Cheap Transportation Association (subse- 
 quently the Board of Trade and Transportation) 
 an excellent ground for agitating the subject of 
 railroad abuses. To this agitation considerable 
 vigor was imparted about this time by the dis- 
 crimination then practised against the interest of 
 the commerce of New York, whereby the rail- 
 road corporations chartered by the State of New 
 York made more favorable rates to Baltimore, 
 Philadelphia, and Boston in their charges, for all 
 west-bound as well as east-bound freight, than 
 to New York,
 
 New York's Experience 115 
 
 One of the periodical treaties of peace after a 
 railroad war of great intensity gave to Philadelphia 
 an advantage of two cents a hundred on freight 
 rates from the West, to Baltimore four cents a 
 hundred, and to Boston the same rate as was given 
 to New York, on the lowest class of freight. On 
 the western-bound freight the discrimination 
 against New York in favor of Philadelphia and 
 Baltimore amounted to from seven to ten cents 
 a hundred on the different classifications of 
 freight. This difference in rates was made on the 
 theory that Philadelphia and Baltimore were 
 relatively nearer to the western centres than New 
 York. Boston, however, which was farther away 
 by two hundred miles than New York, was given 
 the same rate. On east-bound freight the theory 
 upon which the discriminations were made against 
 New York was, that the ship charters from and to 
 New York were lower as compared with the other 
 seaboard cities. This, however, on examination 
 proved untrue. Upon this state of affairs being 
 made apparent, the Chamber of Commerce, as 
 well as the Board of Trade and Transportation, 
 took up the question of railroad discriminations, 
 and in a report published by the Chamber of 
 Commerce in 1878, it appeared that during a con- 
 siderable part of January of that year the rates over 
 the New York Central, the Erie, and the Grand 
 Trunk roads were, from Boston to Chicago, from 
 thirty-five to forty cents a hundred. From Boston 
 to Chicago salt was shipped at fifteen cents, while
 
 ii6 Railways in the United States 
 
 forty-five cents was the lowest rate from New 
 York. From Philadelphia to Chicago the rates 
 during the same dates were made as low as seventy 
 cents on first-class goods, while during the same 
 period the rates were maintained at a dollar from 
 New York to Chicago. The lower classes were 
 relatively as high. The committee reported that 
 goods stored in New York were shipped to Boston 
 to be forwarded to the West through New York 
 over the Erie road, or via the Boston & Albany 
 over the New York Central road, at a saving of 
 almost 50 per cent, over direct shipments from 
 New York. Through freights from Liverpool to 
 Chicago, fourth class, were as low as twenty to 
 twenty-five shillings per ton, while the rates 
 remained from Liverpool to New York forty to 
 forty-five cents per hundred pounds, equivalent 
 to about thirty shillings per ton. These facts 
 were brought to the attention of the railway presi- 
 dents, and their aid was solicited to remove the 
 discriminations against New York. They made 
 a contemptuous answer, Mr. Vanderbilt more 
 especially drawing attention to the facilities 
 offered by other cities to their railroad corpora- 
 tions, and claiming that the New York Central 
 had not the same facilities offered to it by the 
 municipal government, and that the merchants 
 should use their influence upon the municipality 
 to extend the facilities afforded the railway cor- 
 porations in like manner as facilities were extended 
 to the Pennsylvania Railroad by Philadelphia, and
 
 New York's Experience 117 
 
 to the Baltimore & Ohio Railroad by Baltimore. 
 A commissioners' bill, which had been drawn, 
 was, for four successive years, submitted to the 
 legislative committees of the State of New York 
 for action, but in almost every instance it had 
 either been reported upon adversely, or, if reported 
 favorably, had, through the influence of the rail- 
 way companies, been smothered in one or the 
 other of the Houses. 
 
 Finding redress impossible through the volun- 
 tary action of the corporations themselves, the 
 Chamber of Commerce, through its committee on 
 transportation, therefore determined to lend its 
 aid to procure the estabhshment of a railroad 
 commission for the State of New York. 
 
 Besides the grievances before referred to, 
 another, of an extremely burdensome character, 
 which affected the people of the State at large, also 
 existed at that time. Between 1875 and 1877 the 
 great railway corporations entered into an active 
 railroad war, and in consequence of the resulting 
 freight rates, cereal products and flour were fre- 
 quently carried by the companies at a loss from 
 the West to the seaboard. That loss might pos- 
 sibly have financially ruined the railway corpora- 
 tions of the State had a corresponding reduction 
 been made in their local tariff; but to recoup this 
 loss on through rates, they maintained, as to the 
 local shipper, rates which under such circumstances 
 became extortionate; thus making the people of 
 the State bear the burden, through the exactions
 
 ii8 Railways in the United States 
 
 of the local tariff, of the trunk line war, in the same 
 manner as though the State were at war and had 
 levied a tax upon its inhabitants to maintain it. 
 This discrepancy between through and local tariffs 
 led to the practical abandonment of milling at the 
 great flouring centres of the State of New York, 
 such as Rochester and Black Rock. It was impos- 
 sible for them to maintain competition against the 
 Minneapolis miller who had his cereals produced 
 at his door and had the flour carried to New York 
 at twenty cents a hundred, when they were com- 
 pelled to pay more than that for the mere carriage 
 of the wheat to their mills, and a higher absolute 
 rate for the carriage of the product of their mills 
 to the seaboard. 
 
 The grazing and cattle interest of the western 
 part of the State suffered in consequence of the 
 low rates of carriage from the western country of 
 cattle on the hoof, and a destruction of interests 
 took place to such an extent that grazing and 
 cattle-raising became a non-remunerative occupa- 
 tion solely by reason of discriminating freight 
 rates against the western part of the State. These 
 subjects were taken up and agitated by the State 
 Grange organizations and the Farmers' Alliance, 
 who joined hands with the Chamber of Commerce 
 and Board of Trade and Transportation in insisting 
 upon some remedial measure against such discrimi- 
 nations. 
 
 Another abuse, which, however, was carried to 
 its extreme limit by the New York Central Rail-»
 
 New York's Experience 119 
 
 road Company, gave additional ground for com- 
 plaint. This abuse was the entire abandonment 
 of any fixed schedule of tariff rates for local traffic. 
 There was a tariff of rates which existed only for 
 the unwary shipper who made his shipment on 
 the assumption that all shippers were treated alike, 
 and he was punished for his want of knowledge 
 by being compelled to pay extortionate rates. A 
 special rate, which was entirely personal to the 
 particular shipper, was made almost invariably, 
 on application, by the freight manager of the New 
 York Central Railroad, exercising his discretion 
 to make it as he saw fit. At the time when a 
 legislative investigation was ordered, there were 
 in existence on the line of the New York Central 
 Railroad upward of 6000 different contracts vary- 
 ing in the most arbitrary manner the published 
 schedule rate for the carriage of local freights. 
 Underlying these special rates there was neither 
 principle based upon car-loads or train-loads as 
 contradistinguished from single packages, nor 
 upon extent of business or readiness of handling, 
 nor any other well-known basis of railway manage- 
 ment. They were granted as the caprice, the 
 whim, or the interest of the railway freight agent 
 dictated. The charge that such discriminations 
 and special rates existed, when made to the legis- 
 lative committee appointed in 1879, was at first 
 flatly denied, but within the first few days of the 
 investigation which followed, and to which reference 
 willpresently be made, it wasoverwhelmingly proved.
 
 120 Railways in the United States 
 
 THE RAILWAY INVESTIGATION IN NEW YORK IN 1 879 
 
 Public opinion had become so agitated upon the 
 subject that at last all the opposing influences of 
 the railways in the Assembly were overcome. An 
 investigation of the railway system of the State of 
 New York was ordered by the legislature of 1879, 
 and a committee appointed to investigate the 
 abuses alleged to exist in the management of the 
 railroads of that State. This committee was com- 
 posed of A. Barton Hepburn as chairman, Henry 
 L. Duguid, James Low, William L. Noyes, James 
 W. Wadsworth, Charles S. Baker, James W. 
 Husted, and Thomas F. Grady. The committee 
 invited the Chamber of Commerce and Board of 
 Trade and Transportation, which had made the 
 charges upon the basis of which the committee was 
 acting, to appoint coimsel to conduct the exami- 
 nation, and stated that the committee would give 
 to such counsel standing before it by substantially 
 adopting him as the counsel of the committee. 
 Under this invitation the Chamber of Commerce 
 and the Board of Trade and Transportation 
 appointed the writer hereof as its counsel to con- 
 duct the investigation, and then during a period of 
 eight months the investigation proceeded in the tak- 
 ing of testimony and the preparation of its report. 
 
 EFFORTS TO MAINTAIN RATES UNDER FINK 
 COMMISSIONERSHIP 
 
 Prior to the appointment of this committee, a
 
 Hepburn Investigation 121 
 
 great change had taken place in the management of 
 the great trunk Hnes in their relation to the public. 
 Mr. Albert Fink — who had been the vice-president 
 of the Louisville & Nashville Railroad, and who 
 was commissioner or chairman of the committee of 
 the Southern Railway and Steamship Association, 
 which was comprised of twenty-five railroads, and 
 who by a pooling arrangement of freights in the 
 organization of that association had substantially 
 stopped railroad wars and competition among 
 them, and the success of whose management had 
 drawn attention to his executive ability — ^was in- 
 vited by the railroad magnates of the East to or- 
 ganize, upon the plan of the Southern Railway and 
 Steamship Association, an organization to keep the 
 peace and maintain rates for the trunk lines cen- 
 tering at New York, Boston, Philadelphia, and 
 Baltimore. Down to that period of time every 
 attempt to create a "joint purse," as it is called 
 in England, or a "pool," as it is termed in the 
 United States, by which, to prevent railway wars, 
 the proceeds of freight charges were divided 
 between the railway companies, had proved fruit- 
 less. Scarcely was the ink dry on the contract 
 made between the railway presidents before each 
 particular railway company attempted, in one 
 way or another, to break away from the contract 
 thus made. So little under control were some of 
 the freight agents, that even if the railway presi- 
 dents desired to maintain the contract in its 
 integrity, they found it impossible to control the
 
 122 Railways in the United States 
 
 various freight lines doing business over their own 
 roads, and the contracts were broken almost as 
 soon as made. Thereupon, in June, 1877, Mr. 
 Fink was appointed commissioner of the four 
 trunk lines, the Baltimore & Ohio, the Pennsyl- 
 vania, the Erie, and the New York Central & 
 Hudson River railroads. In December, 1878, he 
 was further appointed commissioner of the com- 
 bined trunk lines of the western roads. A contract 
 was made by which, in addition to the agreement 
 as to regular tariffs, each railroad corporation 
 agreed to accept a certain percentage of all the 
 freight that was offered, and to send to the other 
 lines which had a deficiency whatever surplus was 
 offered to it, in consideration of which it was like- 
 wise to receive from the other line its own defi- 
 ciency. Substantially it was then agreed as to 
 west-bound freight, and subsequently as to east- 
 bound freight, that the roads were to be operated 
 with reference to traffic as though they were one 
 corporation, and Mr. Fink, as a commissioner, 
 was to see to it that this arrangement was faith- 
 fully carried out. He had supplied him a large 
 staff of clerks to make these equalizations from 
 time to time. A further development of this 
 principle was the appointment of arbitrators, three 
 in number, to determine disputed questions. The 
 system has certainly resulted, first, in maintaining 
 rates, and secondly, in stopping railroad wars 
 between the contracting parties. A railroad war, 
 while, on the one hand, reducing rates, produces,
 
 Hepburn Committee Report 123 
 
 on the other hand, great demoralization in com- 
 mercial transactions by the element of uncertainty 
 caused by the absence of a certain rate, vastly 
 more expensive in its ultimate results than the 
 higher rate for freight. 
 
 THE HEPBURN COMMITTEE REPORT 
 
 The all but unanimous report of the investi- 
 gating committee appointed in 1879 was made 
 after an exhaustive inquiry, contained in five 
 closely printed volumes of testimony. This com- 
 mittee, in summing up the condition of railroad 
 management as they found it in the State of New 
 York, passed in review the various abuses which 
 had grown up under the management of these 
 great highways by private corporations without 
 responsibihty to the State. They referred to the 
 evil of the drawing-room or sleeping-car companies, 
 which, by their contracts with the railroad com- 
 panies, created a special interest that diminished 
 the return of the shareholders of the railroad 
 companies. They spoke of the fast freight Hnes 
 and express companies as then conducted as free 
 from evil. They condemned the methods by 
 which the stock-yards at the terminal points of 
 the railways were let out to individuals, and 
 spoke of this as an instrumentality usually at- 
 tended with additional taxes upon transportation. 
 They considered the suborganizations of railways 
 in the way of coal companies and elevator asso- 
 ciations, which they designated as barnacles upon
 
 124 Railways in the United States 
 
 commerce, as organized for the purpose of tolling 
 the commerce of that port (Buffalo) to the greatest 
 possible extent. In alluding to watered stock, 
 the committee referred to the fact that it was 
 proved before them that $40,000,000 was probably 
 the whole value of the property and equipment of 
 the Erie Railway Company, and that $25,000,000 
 more would cover all the additional value of the 
 road, as represented by stock and bonds and 
 interests in other corporations, while it was capi- 
 talized at about $155,000,000; that its construc- 
 tion account covered in 1873 an item of "legal 
 expenses" of $891,000; and that the watering of 
 the stock of the Erie Railway, as well as its bonds, 
 was estimated by them to be not less than $70,- 
 000,000. They proceeded to examine the accounts 
 of the New York Central Railway. They found 
 that in 1853 the stocks and bonds of the roads 
 which at that time formed the various links of the 
 chain of consolidation thus effected, amounted to 
 a total of $23,000,000, and that at the time when 
 the first consolidation was effected, premiums, or, 
 in other words, water, to the extent of almost 
 $9,000,000, were given to the stockholders and 
 shareholders of these various roads. From 1868 
 to 1870, by the consoHdation of the New York 
 Central and the Hudson River railroads, over 
 $44,000,000 was added to the combined capital 
 of both these roads, by stock dividends of 80 per 
 cent, on the New York Central road in 1868, and 
 85 per cent, on the Hudson River road.
 
 Hepburn Committee Report 125 
 
 The committee passed in review local questions, 
 which it is not necessary to enter into here, on the 
 subject of the terminal facilities and the injustice 
 done by the discriminations against New York 
 by the arrangement of discriminating rates, and 
 then they touched upon the abuse fully developed 
 before them, connected with the Standard Oil 
 Company. 
 
 It appeared by the testimony submitted, that 
 on Jan. 8, 1872, the Central, Erie, Lake Shore, and 
 Pennsylvania roads made an agreement with the 
 South Improvement Company, a Pennsylvania 
 corporation, giving to the improvement company, 
 on shipment of oil to different points, rebates 
 ranging from forty cents to $3.07 a barrel. The 
 agreement provided that its object was to main- 
 tain the business of the South Improvement Com- 
 pany against loss or injury by competition, and 
 that the roads would lower or raise the gross rate 
 of transportation over their respective railways 
 and connections, to such an extent as might be 
 necessary to overcome all competition. 
 
 When the agreement became public, the legis- 
 lature of Pennsylvania was compelled by public 
 opinion to vacate the charter of the corporation. 
 A more ingenious and secret agreement, however, 
 was subsequently made with the Standard Oil 
 Company, by the railroad corporations, securing 
 to that corporation the objects which were in- 
 tended to be secured to the South Improvement 
 Company. This company, originally composed of
 
 126 Railways in the United States 
 
 a few enterprising oil men of the western States, 
 gradually absorbed into its management the Stan- 
 dard Oil Company of Cleveland, the Standard 
 Oil Company of Pittsburg, the Acme Oil Com- 
 pany of New York, the Imperial Oil Company of 
 Oil City, the Atlantic Refining Company of Phila- 
 delphia, Charles Pratt & Co. of New York, the 
 Devoe Manufacturing Company of New York, J. 
 A. Bostwick & Co., and Messrs. Rockefeller, Day, 
 Flagler, Warden, Frew & Co., and others. 
 
 This combination against the remainder of the 
 trade, now banded together under the name of 
 the Standard Oil Company, was characterized by 
 the committee as a flagrant violation of every prin- 
 ciple of railroad economy and natural justice. 
 It resulted in driving out of business nearly all 
 competitors, and enabled the Standard Oil Com- 
 pany to purchase, at such rates as they saw fit, the 
 refineries distributed over the United States, which 
 they desired to control either for the purposes of 
 manufacturing or to dismantle. This threw the 
 production, distribution, and refining of oil into 
 the hands of a single corporation, to the extent, 
 estimated at that time, of 95 per cent, of the whole 
 product. In this regard the committee said, that 
 from January to October, 1879, the total ship- 
 ments from the oil regions to all points were 
 12,900,240 barrels, and that all shipments to the 
 seaboard would have easily borne one dollar more 
 per barrel than they did (the rate then being 
 about twenty-five cents a barrel) ; that, tested by
 
 Hepburn Committee Report 127 
 
 the charge which the roads imposed upon every 
 other commodity, it should have borne that much 
 more ; and that all the trunk lines had grown into 
 such relations with this oil company that they 
 were forced to forego all these millions they might 
 have earned, and compelled to look to the other 
 products of the country for their revenues; thus 
 burying their own interest in the interest of the 
 Standard Oil Company, and joining in this war of 
 rates to protect the latter against injury by com- 
 petition. 
 
 The attention of the committee had been drawn 
 to the evils connected with the proxy system, by 
 which railways were captured by the mere pur- 
 chase of voting power from persons, mainly 
 bankers, in whose names large amounts of stock 
 were registered, but which had been sold and dis- 
 tributed to their customers, and for prudential 
 reasons were left standing in their names on the 
 stock books of the companies. This situation gave 
 to such persons a large voting power in the railway 
 without a substantial interest or stake in the result 
 of the vote. To persons who desired to capture the 
 road, it was a strong temptation to purchase such 
 voting power; and, to persons who had no perma- 
 nent interest in the road, it was a corresponding 
 temptation to sell the power, the evil effects of the 
 sale of which they were not personally called upon 
 to bear. The committee, therefore, recommended 
 the passage of a bill to remedy this abuse. 
 
 The committee likewise condemned the system
 
 128 Railways in the United States 
 
 of reports to the State Engineer and Surveyor, and 
 then passed under review the system of special 
 rates, which was founded upon no other basis than 
 the arbitrary will of the freight agent in giving 
 individual shippers, located in the same town, 
 rates var^dng as much as thirty cents a hundred. 
 The committee investigated the theory that had 
 been advanced by all the railroad experts of 
 "charging a traffic what it will bear." Of this they 
 said, that, " as to an increase of from fifteen cents in 
 August to forty cents in November on grain, the 
 rate was raised simply because the condition of the 
 market warranted it, and the product could bear 
 it. It would be difficult to make a criticism upon 
 that raise which public judgment would sustain, 
 but we are distinctly told that public interest 
 plays an insignificant r61e in the theatre of rail- 
 road management. It is at best but a service 
 waiting upon the interest of the stockholders. 
 The wrong consists in exercising a censorship over 
 the business affairs of the community; secretly, 
 arbitrarily, and unequally varying rates, building 
 up this, developing that; not only performing the 
 proper functions of transportation, but taking into 
 consideration the probable or possible profit of a 
 shipment, and adjusting their rates accordingly. 
 If the shipper is likely to make a large profit, they 
 compel him to divide ; if the margin is a close one, 
 they determine whether the shipment shall be 
 made or not, whether it shall result in a profit or 
 loss. Thus, under this system of management,
 
 Hepburn Committee Report 129 
 
 and this method of giving rates, is every merchant, 
 every manufacturer, every shipper, and, through 
 them, every individual along the 5500 miles of 
 railroad in this State, with its five hundred millions 
 of capital, measurably in the power of these cor- 
 porations. Conciliate their good will, court their 
 favor, and favorable rates will follow; incur their 
 hostility, and the margin of their displeasure may 
 be read on your freight bills." 
 
 The committee spoke of the enormous political 
 influence wielded by corporations then having in 
 their employ upward of 30,000 voters. They spoke 
 also of the contemptuous disregard exhibited by 
 the railroad corporations of the State to the milling 
 interest, in April, 1879, when they answered a 
 temperate statement of grievances by saying, 
 that "the first condition of having them listened 
 to was to retract their signatures from a certain 
 circular, dated March 15, 1879," in which these 
 grievances were stated in moderate terms, and 
 "to withdraw their support from a pro rata freight 
 bill, which was then before the Assembly." 
 
 The committee concluded their analysis of the 
 testimony with a citation of the Shoelkopf & 
 Matthews agreement, whereby the New York 
 Central Railroad boimd itself to carry to New 
 York, for these millers situated at Niagara Falls, 
 at a pro rate of the through east-bound rate on 
 grain or flour, whatever it might be, which enabled 
 these millers to maintain their mill in full operation 
 while their neighbors were going out of business
 
 130 Railways in the United States 
 
 simply because they had not as favorable a con- 
 tract. The contract appeared to have been made 
 for five years, and was to be valid on condition 
 that it was to be kept secret. Personal discrimina- 
 tion could go no farther than was illustrated in 
 that case. 
 
 This investigation proved conclusively that 
 every charge that had been made against the rail- 
 way corporations by the commercial bodies of 
 the State was under-stated rather than over-stated ; 
 that these great trusts had fallen into the hands 
 of persons who exploited them for their personal 
 benefit solely; that the pubHc was only in so far 
 regarded as any tyrant would regard the public; 
 that it was dangerous to exasperate them too 
 much ; and that as freight charges are in the nature 
 of taxes, if a continuous revenue from taxation 
 is wanted, it must stop short of confiscation. 
 
 The recommendations of the committee, there- 
 fore, were embodied in bills which embraced, in 
 substance, the commission bill which, with some 
 slight modifications, had been previously drafted 
 at the request of the Board of Trade and Transpor- 
 tation; a bill upon the subject of railway proxies, 
 railway consoHdations, and stock waterings; a bill 
 to regulate the transportation of freight by the 
 railroad corporations, so as to prevent unjust dis- 
 criminations; and a bill to insure a uniform system 
 of accounts and a different system of reports. 
 
 Of these bills, the one to create a board of com- 
 missioners became law; likewise the one, with
 
 Railroad Commissions 131 
 
 considerable modification and amendment, upon 
 the subject of proxy voting; also the one which 
 prescribed a different method of rendering ac- 
 counts. The other bills failed of adoption. 
 
 RAILROAD COMMISSION ACT IN NEW YORK 
 
 The New York commission bill was passed, and 
 Governor Cleveland, as one of his first acts after his 
 installment into office, appointed Messrs. Kernan, 
 O'Donnell, and Rogers commissioners. The bill 
 authorized the Chamber of Commerce, the Board 
 of Trade and Transportation, and the Anti- 
 Monopoly League, to nominate one of the commis- 
 sioners to the Governor; and Mr. O'Donnell was 
 so nominated by two of the three bodies, and the 
 Governor, under the bill, made the appointment. 
 
 By the establishment of this commission, the 
 long struggle between the railways of the State 
 of New York and the people was brought to a 
 close, favorably to the people. A body has now 
 been interposed, with power somewhat similar to 
 that of the Massachusetts commission, between 
 the people and the powerful railway corporations, 
 clothed with authority for searching and contin- 
 uous investigation and, in all probability, that 
 body will prove to be a permanent one. The 
 sense of responsibility in the performance of the 
 task, together with the natiural aptitude of intel- 
 ligent men to grow to the work they have in hand, 
 will, in time, make this commission a valuable aid
 
 132 Railways in the United States 
 
 to proper legislation. The important interests 
 constantly connected with the subject committed 
 to their care will cause the work of the commis- 
 sion to be carefully watched, and the strong 
 temptations that are placed in the way of these 
 commissioners, in consequence of the enormous 
 wealth and power of one of the parties constantly 
 before it, will inevitably cause the commission to 
 act with prudence, for the purpose of shielding 
 themselves against suspicion. 
 
 RAILROAD COMMISSIONS IN OTHER STATES 
 
 During the same years, other States had parallel 
 experiences in struggles for the appointment of 
 railroad commissioners. There are now [1883] in 
 existence fourteen railroad commissions in the 
 various States of the Union [45 in 1910], whose 
 business it is to supervise and investigate, if not 
 control, the railroad corporations within the State ; 
 to report such amendatory laws as in their opinion 
 are necessary for the purpose of correcting the 
 abuses incident to railroad management; and to 
 cause actions to be instituted to prevent either 
 violations of charter limitations or violations of 
 the rights of shippers or passengers, which may 
 be brought to their notice. [In 1910 nearly every 
 State had a Board of Railroad Commissioners.] 
 
 During this period, the valuable reports on 
 internal commerce, issued by Mr. Joseph Nimmo, 
 Chief of United States Bureau of Statistics, aided
 
 Federal Regulation 133 
 
 considerably in creating an enlightened public 
 opinion on the relations of the railways to the 
 State, and the part that they perform in the move- 
 ment of the commerce and development of the 
 industry of the nation. 
 
 EFFORTS TO REGULATE COMMERCE BY COMMISSION 
 OR BY PRO RATA FREIGHT BILL 
 
 During the last five years [1883], efforts were 
 made in the United States Congress to create a 
 Board of Railroad Commissioners for the United 
 States, to exercise over all the railway corporations 
 doing an interstate business the same kind of super- 
 vision and control as is exercised by the various 
 State commissions over corporations chartered by 
 the several States. Almost pari passu with this 
 attempted reform, an annual effort is made in 
 Congress to regulate interstate commerce, without 
 the intervention of a commission, in the passage 
 of a freight bill, in the natiure of a pro rata bill, 
 containing anti-discrimination clauses. Thus far, 
 the advocates of the two measures have opposed 
 each other, and probably no good results will be 
 accomplished until the friends of federal legislation 
 agree upon a commission bill, as the entering 
 wedge to such legislation as should properly be 
 passed by the United States, for the purpose of 
 making this enormous interest, in the aggregate 
 more powerful than any single State organization, 
 amenable to the better concentrated public power,
 
 134 Railways in the United States 
 
 as represented in the United States Congress. The 
 railroad corporations, organized by the States, 
 have thus far resisted, at every step, every attempt 
 to make them amenable to federal legislation. 
 Although many of these corporations derive their 
 charter powers from several States, and substan- 
 tially run cars over the territory of half the Union, 
 they nevertheless insist that they are amenable 
 only to such States as have granted them their 
 charter privileges, and that the United States 
 Congress can not properly exercise any control 
 over them. The necessity of the case, as well as 
 sound logic, fights against their cause ; and the time 
 is not far distant when the people, as represented in 
 the general government, must take in hand the 
 railway corporations of the United States, con- 
 centrated as they now are in power by becoming 
 more and more under the control of a few leading 
 minds who can be gathered together in a single 
 room of a gentleman's private house, and, for 
 weal or for woe, can, and do, more materially affect 
 the welfare of the people of the United States than 
 can any representative body organized in any of 
 the States of the Union or under the federal con- 
 stitution. It is, therefore, not a figure of speech 
 to say that an imperium in imperio has grown up 
 in the community, which, by combination and 
 concentration of power, is more powerful than 
 the community, and that the question of making 
 it amenable to the general powers of the govern- 
 ment is no longer one of expediency, but one of
 
 Problems for Solution 135 
 
 prime necessity. [The Interstate Commerce Com- 
 mission was established by an act of Congress in 
 1887.] 
 
 Questions Still Undetermined 
 
 This brings us to a consideration of some of the 
 general questions, which are as yet unsolved prob- 
 lems, with reference to the government of railways, 
 either by the State or by private management. 
 
 RAILWAYS CANNOT COMPETE LIKE OTHER 
 BUSINESSES 
 
 The general result of investigation in the 
 past fifteen years of the railway question in the 
 United States, and the development that has taken 
 place, both in railway construction and in many 
 of the evils incident to railway administration, 
 have modified both public opinion and the opinion 
 of experts who are not blinded by personal interest, 
 on the subject of the extent to which competition 
 is a regulator of the price of service in railway 
 transportation. It went hard for the free-trader 
 to surrender his faith in competition and to admit 
 that it is not a universally applicable principle. 
 It has now been ascertained that, notwithstanding 
 the enormous progress of railway construction in 
 the United States within the past thirty years 
 [prior to 1883], railways can never be multiplied 
 to such an extent as to make them compete in the
 
 136 Railways in the United States 
 
 same sense that grocers, butchers, hatters, and 
 shoemakers compete. They will be at war for a 
 time, and then comes a long period of peace, when 
 the railways work under combination even at com- 
 petitive points. It is difficult to tell whether the 
 war is not more injurious than the peace, so far 
 as public interests are concerned. When there is 
 competition between rival hatters, customers are 
 treated alike at one or the other shop in the pur- 
 chase of the commodity they want, and even if 
 they are not so treated, no great harm is done. 
 A railway war is generally carried on secretly for 
 a considerable period of time before open hostilities 
 begin. Railways, in vying with each other for 
 business, seek to obtain the more important cus- 
 tomers from eacn other, and make concessions to 
 larger shippers which they are not ready to make 
 to the smaller men. This instantly gives to the 
 larger shipper so great an advantage, in addition 
 to that which he already has by reason of his 
 greater capital, over the smaller man in the same 
 line of trade, that the smaller dealer does his 
 business at a loss ; he discovers that his formidable 
 rival can offer goods at prices with which he can 
 not compete, and he is frequently driven out of 
 business or into bankruptcy by reason of a secret 
 advantage which his stronger competitor has in 
 transportation rates. 
 
 Thus monopoly breeds monopoly, and cen- 
 tralization of business is built up, not by greater 
 natural aptitude, but by injustice and wrong.
 
 Problems for Solution 137 
 
 Even during periods of railway peace these 
 advantages are frequently got and maintained 
 by the more formidable shipper for the piu-- 
 pose of tying him to a particular railway, with 
 the mischievous tendency to make the poor 
 poorer and the rich richer. This personal system 
 of tariffs produces absolutely the same effect as 
 unequal taxation. As the beneficial results of 
 competition are not obtained by duplicating lines, 
 such additional routes are an evil rather than a 
 good. The large expenditure of capital in creating 
 the duplicate line might have been saved, since 
 but very few railway corporations in the world 
 have their road-bed taxed to their maximum 
 capacity. The existence of the new line built for 
 competition is in reality an investment of an 
 enormous amount of capital to divide the traffic 
 which the existing line is perfectly competent to 
 carry, and results in the traffic being done at a 
 very much greater expense for fixed charges than 
 if the existing road had added to its rolling stock 
 facilities and had been permitted alone to accom- 
 modate such traffic. When peace is made, rates 
 are fixed so high as to afford a reasonable expec- 
 tation of a return upon a very large amount of 
 capital unnecessarily expended in the building 
 of so-called rival lines. This has led to the general 
 conviction that, for economizing capital and pro- 
 ducing, through these instrumentalities of com- 
 merce and of trade, the maximum result for the 
 benefit of society, it would be better were we to
 
 138 Railways in the United States 
 
 start de novo; and instead of dealing with existing 
 conditions, to transfer to a corporation a definite 
 field for its operations, under strict supervision 
 of its tariff rates, and to stipulate that the cor- 
 poration shall not be interfered with as to the 
 field so long as it keeps down its rate to a certain 
 percentage of profit. 
 
 At almost every western point, whether in 
 Colorado, Utah, or Arizona, we find railways just 
 constructed, and running two or three trains a 
 day, threatened with rival enterprises, which pro- 
 pose to divide between them the Httle traffic that 
 there is, and to destroy the profitableness of the 
 capital investment in the original line, so that in 
 the end the business divided between them, at 
 extortionate rates, is not sufficient to pay for opera- 
 ting expenses and fixed charges on both capitaliza- 
 tions. But we are not now called upon to deal with 
 this question de novo, as railway development in 
 the United States has proceeded to a point to make 
 assignments of fields almost impossible of accom- 
 plishment through the instrumentality of legis- 
 lation. The railway companies themselves are 
 beginning to discuss the expediency, as a matter 
 of self-preservation, of coming to some agreement 
 as to fields between them. This, however, will 
 be extremely difficult to accomplish by voluntary 
 action. 
 
 However faithfully existing railroad corporations 
 may adhere to an agreement not to invade each 
 other's field, the absence of legislation holding the
 
 Effect of Railway Wars 139 
 
 railway corporation to a strict accountability as 
 to charges within the field with reference to which, 
 by common consent, it thus obtains a monopoly, 
 makes such an agreement one that the courts 
 would probably declare void as against public 
 policy. It would, in reality, in the absence of such 
 supervision and control, be a conspiracy against 
 the public. That the railway corporations already 
 discuss these questions, and begin to regard the 
 occupation of a field as a right arising from the 
 circumstances of the case in favor of the particular 
 railway occupying it, is an indication that the 
 railways themselves have abandoned all pretense 
 of competition in the same sense in which that 
 term is understood in private enterprises. The 
 practical consoHdations rapidly proceeding under 
 commissionerships like Fink's, will tend somewhat 
 toward the solution of this problem, because it 
 will enable the Government to deal with these 
 corporations upon the basis of their dealing with 
 each other, and at some day or another to prac- 
 tically appoint fields to conglomerate bodies of 
 railway corporations in following out the line 
 traced by their voluntary action. 
 
 EFFECT OF RAILWAY WARS 
 
 One of the peculiarities of railway competition 
 is, that the unsuccessful competitor in a railway 
 war, driven to insolvency, unlike the unsuccessful 
 competitor in mercantile life who is driven into
 
 140 Railways in the United States 
 
 insolvency, is not thereby driven out of the 
 market. The insolvent corporation becomes in 
 many respects a menace to the solvent corpora- 
 tion more formidable than it was in its solvent 
 condition. It begins, in railway parlance, to 
 "run wild" after its insolvency, being exonerated 
 from paying interest upon bonds, or dividends 
 upon stock. Being required to earn simply 
 operating expenses, it carries on a war of rates 
 with a recklessness that threatens to break 
 the solvent corporation, fighting it into the same 
 condition of insolvency. Therefore, during the 
 active railway war of 1875-7, carried on between 
 the New York Central, the Erie, the Baltimore & 
 Ohio, and the Pennsylvania railroads, the more 
 favorably placed New York Central Railroad did 
 not dare to carry the war to a point which would 
 drive its adversaries into insolvency, lest the 
 insolvency of the Baltimore & Ohio Railroad, and 
 possibly of the Pennsylvania Railroad, might 
 threaten the solvency of the New York Central. 
 The motive and the facility for combination are 
 so great that combination will almost invariably 
 take the place of competition; and railway man- 
 agers and legislators must now recognize as a fact 
 that the railways are not, and cannot, without 
 the interference of Government, be subjected, 
 within any period of time about which we need 
 give ourselves any concern, to the law of com- 
 petition to that degree that we may look there- 
 from for the same results as in other departments
 
 Politics 141 
 
 of human activity, with any confident expectation 
 of maximum results to society at minimum expense. 
 The natural law of competition being inapplicable, 
 the question of governmental interference, there- 
 fore, resolves itself simply into one of degree: 
 how far is it expedient to regulate railways by the 
 public? and that depends very much upon other 
 questions to which in this country we can not shut 
 our eyes. 
 
 POLITICS AND THE RAILWAY 
 
 As political machinery has, by a vicious party 
 system which by no means can find its complete 
 corrective in the rules of civil service reform, more 
 and more insidiously divested the people of self- 
 government within the past generation, we are 
 in a condition in which is presented the question, 
 when we speak of governmental control, not 
 whether the railways shall manage themselves, 
 nor whether the people, through the Government, 
 shall control their management, but whether the 
 railways, banded together in organizations having 
 at their head powerful, astute, intelligent, and 
 somewhat unscrupulous men, shall, in affairs in 
 which they have a large interest and in which they 
 must pay some regard to public welfare varying 
 in degree according to circumstances, manage 
 those important trusts, or whether the politicians, 
 equally unscrupulous and astute, but not quite 
 equal in intelligence as banded together in party
 
 142 Railways in the United States 
 
 machinery, shall, in the interest of those political 
 organizations which represent even more remotely 
 the public interests than the railway direction 
 represents them, manage those important trusts 
 for them. There are many important reforms, 
 therefore, in our governmental machinery which 
 must proceed contemporaneously with the transfer 
 of power from the corporation management to 
 public control before we can hope for any 
 great reHef from public control as compared with 
 corporate management. It is, therefore, well to 
 proceed slowly even in a proper direction until 
 the machinery of government in the United States 
 shall be emancipated more from the concomitant 
 and attendant bossism, political corruption, and 
 chicanery existing under our representative and 
 party conditions. It must be admitted that the 
 direction must be toward governmental control, 
 but this imposes upon the people of the United 
 States the duty of making its governmental ma- 
 chinery fit to exercise such control. Neither the 
 State nor federal machinery is as yet in that 
 condition. 
 
 PROPER BASIS OF RAILWAY CHARGES 
 
 Another important question which must be 
 taken in hand with reference to railway manage- 
 ment is to find some proper basis for railway 
 charges. The doctrine which now prevails among 
 railway managers, of charging the traffic all that
 
 Basis of Charges 143 
 
 it will bear, the basis upon which its classification 
 as well as its tariff rates depend, is monstrously 
 unjust, and should be radically changed. It is true 
 that the responsibility of a corporation for the car- 
 riage of a case of silks is greater than when it car- 
 ries a bale of cotton. But the difference in the rate 
 charged is not based upon the slight premium 
 which would represent an indemnity fund for the 
 losses that might possibly occur from the loss of 
 the package, but the difference is based really upon 
 the supposed profit that the merchant or jobber 
 makes on a case of silk as compared with the bale 
 of cotton, and that he can afford, therefore, to 
 divide with the railway the larger amount in the 
 general result. This makes this service differ from 
 that of any other rendered under competition in 
 society. What regulates prices ordinarily is the 
 cost of production, not the benefit to the consumer. 
 The laudanum that is intended to cure a tooth- 
 ache costs at the store of the druggist the same 
 sum as the laudanum which is to save a life. The 
 use to which the object is to be put, or the benefit 
 conferred upon the consumer, does not affect the 
 price. It is said by the railway manager, in 
 answer to this position, that he must regard his 
 traffic as a whole, and that, by reason of the greater 
 value of these first-class goods and the higher 
 charge which he can make on them, he is enabled 
 to carry the lower priced goods at a rate at which 
 they can be moved, and that, if he were precluded 
 from charging the higher rate on goods as readily
 
 144 Railways in the United States 
 
 handled, but which are much more valuable in 
 money, he could not cany ores, coal, or stone at 
 any such rate as would justify their transportation 
 from place to place. There is force in this position, 
 but not to the extent to which it is claimed, and 
 in that respect intelligent investigation and careful 
 governmental control will have to strike a mean 
 which will be more just than the existing classifica- 
 tions, and so adjust the rates both to consumer 
 and producer as to enable all classes of commodities 
 to be moved without doing injustice to therailway 
 corporation. 
 
 The application of the doctrine of charging 
 what the traffic will bear substantially makes the 
 railway corporation a special partner, without 
 investment of capital, in every enterprise along 
 its line. The extent to which unscrupulous traffic 
 managers and agents can, for their private emolu- 
 ment, carry this power of enforced copartnership, 
 and that this power is availed of, is exemplified by 
 the fact that on comparatively moderate salaries 
 these traffic managers within a very few years 
 very often become men of great fortunes. , It is 
 a power to which modern society has known no 
 parallel since the days of the farmers-general of 
 France, who, in consideration of a sum total paid 
 into the French treasury during the corrupt 
 regency of the Duke of Orleans, and the reign of 
 Louis XV., obtained the privilege of having a 
 section of France farmed out to them to tax at 
 their own will. It is therefore absolutely essential,
 
 Basis of Charges 145 
 
 with reference to transportation lines, that with- 
 out thereby fixing absolute rates, severe penalties 
 shall be imposed by legislation for breach of the 
 public trust for personal ends, and also that 
 stringent penalties shall be imposed upon the 
 making of discriminations between persons of the 
 same locality. It is likewise the duty of the public 
 to see to it that some unit, whether car-load or 
 train-load, be established, upon the basis of which 
 all shippers shall be treated alike, and to place 
 the smaller shipper upon some basis of equality 
 with the larger shipper. The smaller shipper 
 should by law be permitted to avail himself, in 
 combination with other people, of the car-load 
 unit. 
 
 MAXIMUM CHARGES TO BE REGULATED 
 
 Maximum charges have, in the experience of 
 England, been found to be almost universally 
 useless. The economies in railway traffic arising 
 from steel rails, improved road-beds, better gra- 
 dients, the greater power of engines, reduced rates 
 of fuel, and through lines obviating breaking of 
 bulk, have been so great within the past fifteen 
 years that any fair rate at one period of time 
 becomes at any other period so excessive as to 
 cease to be a criterion. Maximum rates, therefore, 
 when fixed, must be so arranged as to be under the 
 supervision of some tribunal commanding public 
 confidence and authorized to exercise such super- 
 
 zo
 
 146 Railways in the United States 
 
 vision, and to be from time to time registered upon 
 a lower scale with reference to cost of traffic. 
 
 SECRET RAILWAY TARIFFS 
 
 A serious grievance in relation to American rail- 
 way administration arises from railway tariffs 
 being secret, and subject to sudden changes or 
 modifications. No tariff of transportation rates 
 should be permitted to be changed, except upon 
 previous notice of a considerable period of time. 
 Even the lowering of a tariff rate produces at the 
 outset as much financial and commercial disturb- 
 ance as the raising of it does. It is said that the 
 knowledge obtained by the officers of the Stand- 
 ard Oil Company in 1880, that the tariff rates on 
 oil would be suddenly increased by the railroad 
 corporations, gave to that combination a profit 
 of several millions of dollars. Whether true or not 
 is immaterial. It is possible for special favored 
 private interests to be informed secretly of an 
 intended sudden change of tariff on an im.portant 
 commodity. In consequence of that information, 
 which necessarily changes the price of that com- 
 modity at the point of delivery or at the point of 
 shipment, the making of a purchase or a sale in 
 advance, based upon that knowledge, gives abso- 
 lute certainty of a large profit, which is so much 
 wrested from those who do not know it. This is 
 an advantage which should not be permitted to 
 remain in the hands of railway administrators to
 
 Secret Tariffs 147 
 
 make use of, either for personal ends or for the 
 benefit of friends as they may see fit. A law, there- 
 fore, providing with great stringency that all 
 tariffs shall be published for at least six months in 
 advance, and that no modifications thereof shall 
 be permitted during that time, is a necessity to 
 avoid this mischief. Tariffs also should be pub- 
 lished at every station, with classifications, so that 
 every man doing business with the railway corpo- 
 ration should be permitted, at a glance, at every 
 station either of delivery or of receipt, to compare 
 his freight bills with the published tariff rates, 
 and see to it that he is fairly treated. Every devi- 
 ation from the tariff to a favored shipper should 
 result in imposing upon the railway corporation 
 that allows such a deviation the payment, to 
 every other shipper, of a rebate based upon the 
 lowest shipment made. This penalty would be 
 so severe that there would be no longer any favored 
 shippers, and it is right that it should be so, 
 because, of all evils incident to American railway 
 administration, that of personal favoritism has 
 been the most shameless and the most mischievous. 
 [These reforms have practically all been incor- 
 porated in the Interstate Commerce Act.] 
 
 SECRECY OF MANAGEMENT AND ITS EVILS 
 
 Another problem presented by the existing con- 
 dition of the railways in the United States is that 
 which arises from secrecy of management. This 
 evil must be dealt with radically. One of the prime
 
 14S Railways in the United States 
 
 motives for secrecy of management is the enor- 
 mous advantage which at the present day it gives 
 to the managers in the maintenance of their power. 
 They alone know where the stockholders are to 
 be found, and can therefore control votes by the 
 knowledge of how to reach or buy them, thus 
 perpetuating their control. Another motive is the 
 advantage thus afforded for stock speculations. 
 The board of managers, by keeping unto them- 
 selves the knowledge that their property is losing 
 heavily in comparative traffic, can sell their own 
 holdings and go short of the market, under cir- 
 cumstances which will yield them an absolute 
 certainty of profit on the transaction. This gives 
 them an enormous advantage over the community 
 by depleting the pockets of the unwary, who find 
 themselves saddled with stocks at high prices, 
 bought months in advance of the public announce- 
 ment that the road is in difficulties. The knowl- 
 edge of rapid gains in the development of business 
 likewise gives, so long as it can be kept secret, 
 a like advantage in purchase of stock. This advan- 
 tage has been exploited to such a degree in the 
 United States that the investing public has 
 become inspired with a general distrust for railroad 
 stock investments. [Laws to meet these condi- 
 tions have since been enacted.] 
 
 KEEPING OF TRUE STOCK LISTS 
 
 In the States of the Union and under United 
 States laws the existing condition of legislation
 
 True Stock Lists 149 
 
 which gives the absolute control of corporate 
 enterprises into the hands of majorities of stock, 
 and which gives to such stock equal weight, lends 
 itself to this species of management, and places 
 the stockholders' interest, as well as the public, 
 at the mercy of this class of railway directors. 
 The majority of the holders of record at the time 
 of the closing of the books of a corporation have, 
 at the annual election, the power to elect the whole 
 board of directors. As much of the stock of great 
 railway lines in the United States is held abroad, 
 and is not transferred on the books to the actual 
 owners of the property, but remains registered in 
 the names of the persons who had long before 
 parted with all interest therein, there is, at the 
 time of the closing of the books in a great many of 
 these railroad corporations, a large fictitious hol- 
 dership, ranging from one half to one eighth of 
 the whole capital stock holding interest, and this 
 fictitious holding frequently controls such election. 
 Who are fictitious and who are true holders are, 
 as a general rule, approximately known to the 
 directors. The directors, therefore, can sell their 
 real holdings at high prices, and can purchase at 
 low prices the fictitious holdings or power to wield 
 proxies, and thus, for the purpose of depleting 
 the road, capture the railway, in which neither 
 they nor the constituency that elected them, have 
 a substantial interest. This evil also can be 
 remedied by legislation. Severe penalties should 
 be imposed upon any one, having no interest in
 
 150 Railways in the United States 
 
 the corporation, offering to vote, or voting, either 
 personally or by giving a proxy to vote, at any 
 election of directors of such corporation. [This 
 evil has been remedied by legislation in New York 
 State as well as in other States.] 
 
 MINORITY REPRESENTATION 
 
 The severest blow, however, which could be 
 dealt to corporate mismanagement would be the 
 rigorous introduction of minority representation 
 in boards of direction, which would make secrecy 
 of management, as against the interest of share- 
 holders, substantially impossible, and would pre- 
 vent the possibility of the recurrence of some of 
 the worst abuses which characterize their adminis- 
 tration. Suppose twenty directors were to be 
 elected, the reform would consist in allowing each 
 section of one twentieth of the stockholding 
 interest to elect one director, by accumulating 
 their votes upon a single name, or by distributing 
 their votes for one or more, as they may see fit. 
 This is the cumulative plan. Another is the pre- 
 ferential or list plan, in allowing each twentieth 
 part of the constituency to elect one director, by 
 preferences indicated on a ballot, in the order of 
 the names as printed. When the first name has a 
 quota sufficient to elect him, i.e., one twentieth 
 of the votes cast, the ballot is counted for the 
 second name, and so forth. The result of this 
 system of minority representation would be to
 
 Minority Representation 151 
 
 make of the board of direction a reduced photo- 
 graph of the whole constituent body, and make it 
 impossible to capture an organization like a rail- 
 way from the actual owners thereof. Any one 
 of the numerous plans suggested for securing 
 minority representation, if applied to corporate 
 management, would successfully accomplish that 
 result. The objection which has been urged to 
 the adoption of minority representation in public 
 representative bodies has no validity in corporate 
 elections, as in corporations neither localities nor 
 persons are supposed to be represented, but pecun- 
 iar3'- interests only. It would better secure fair 
 representation than does the English system of 
 diminished value of votes in proportion to stock- 
 holders' interests, i.e., one vote for every share up 
 to ten, an additional vote for every five others 
 beyond the first ten, and one vote for every ten 
 beyond one hundred shares; or, the classification 
 plan, by which only a few directors of the whole 
 retire each year; minority representation would 
 give permanency in management, and prevent 
 the swamping of the interests of the smaller 
 shareholders. [In some States, such as Kansas 
 and Missouri, laws have been enacted providing 
 for a system of minority representation in boards 
 of direction of railway corporations, but no gen- 
 eral law on the subject has yet been adopted.] 
 
 PRO RATA TARIFFS 
 
 Pro rata tariffs are the refuge of people of little
 
 152 Railways in the United States 
 
 thought on the subject of railway management. 
 It is fair that for the haul or for the car-load alone 
 there should not be permitted a higher rate for 
 the shorter distance than for the longer, as it is 
 manifestly unjust artificially wholly to wipe out 
 and even to reverse the advantages of proximity 
 to the market; but to arrive at anything like a 
 just conclusion on this subject, it will be necessary 
 for the railways voluntarily, or compulsorily 
 through legislation, to make a distinction in their 
 freight rates between what they charge for terminal 
 handling and what they charge for the haul. The 
 terminal handling at a great market is effected on 
 so large a scale that it can be done at very much 
 lower rates for each particular package than the 
 terminal handling at a way station. The cars are 
 more likely to be filled than they are at way 
 stations, so that a perpetual difference must exist 
 in favor of the facilities of commerce which the 
 great centres of activity produce. This would be 
 represented by lower terminal charges for places 
 like New York, Buffalo, and Chicago, than at the 
 small way stations or hamlets along the line. And 
 the haul would be proportionately much less, and 
 justly so, from extreme points of concentration 
 of freights to extreme points of market, because 
 the whole train-loads would go unbroken straight 
 through. On the other hand, it should not be 
 permitted to be so much less as to invert the situ- 
 ation, and to make the more distant point more 
 favorably situated to the seaboard than the nearer
 
 Pro rata Rates 153 
 
 point. [The Interstate Commerce Act has a 
 provision to meet these conditions.] 
 
 Pro rata freight rates disregard the laws of com- 
 merce in that particular, and must therefore be 
 receded from wherever introduced. On the other 
 hand, we must not be blind to the justification 
 which lies at the root of the demand for pro rata 
 rates, i.e., the unrighteousness of inverting the 
 natural situation, which is ordinarily done under 
 the spur of a railroad war at competitive points, 
 under the effect of which the intermediate locali- 
 ties, which are at the mercy of the monopoly power 
 of the railway, must suffer the burden of the war. 
 This can be remedied only by legislation, but in 
 that particular care must be taken that the legis- 
 lation shall not go too far, as in doing so it defeats 
 its own ends, because it becomes impracticable 
 to work under it, and the repeal of the law leaves 
 matters worse than before the law was enacted, 
 as the unsuccessful law is used as an argument 
 against the expediency of any law on that subject. 
 [This subject is sought to be met by one of the 
 provisions of the Interstate Commerce Act.] 
 
 directors should not speculate in 
 company's stock 
 
 A director found speculating in the stock of 
 his own road, either by purchase on margins or 
 sales on margins, should be severely punished. 
 The temptation to sacrifice the interests of the
 
 154 Railways in the United States 
 
 road to subserve his stock operations is too great 
 to be permitted to exist. The man who desires 
 to speculate in the stock of his own railway should 
 be required first to leave the board of direction; 
 if he fails to do so, he should, on detection, be 
 punished as a malefactor. 
 
 FICTITIOUS CAPITALIZATION 
 
 The fictitious capitalization of railroads in the 
 United States is an evil more difficult to deal with. 
 Many motives combine to create such fictitious 
 capitalization. Some are justifiable, others are 
 sinister. Take the case of a mining property. A 
 prospector discovers a silver mine; he sells it for 
 $30,000 to a capitalist in the neighborhood. The 
 property is not developed; the discovery may 
 amount to nothing. It may also be worth millions 
 of dollars. The capitalist, the first investor, 
 spends a few thousand dollars in developing the 
 property, and thereby ascertains that the leads 
 open into a vein within the domain of the Hnes of 
 the stakes. He has his ore analyzed, and discovers 
 that it yields from sixty to eighty dollars a ton. 
 He thereupon proposes to sell this property, and 
 does sell it to a stock company, who capitalize the 
 property at a million of dollars, pay him a hun- 
 dred thousand dollars cash, and something less than 
 half the capital stock, and with the remainder 
 of the capital stock they supply the treasury 
 sufficiently to develop the property. They find
 
 Fictitious Capitalization 155 
 
 some takers on the basis of a million; others on 
 the basis of half a million; others on the basis of 
 a quarter of a million; but, as it is possible that 
 the mine may be worth a million of dollars by- 
 capacity to yield sufficiently to pay interest upon 
 such a sum and to return the capital invested 
 within a given period of time, there is no public 
 wrong in such fictitious capitalization, unless it is 
 accompanied by fraudulent pretenses. The injury, 
 if any is done, is limited also. The individual has 
 invested his money at an excessive valuation, and 
 there is an end. Railway corporations are, how- 
 ever, organized upon fictitious capitalization upon 
 a different basis. A line from one point to another, 
 say a distance of a hundred miles, is surveyed. 
 It is ascertained that it will cost about $15,000 a 
 mile to build, including acquisition of land, and 
 about I5000 a mile to equip ; a total of $20,000 a 
 mile. Application is then made for town and 
 county aid, which aid is generally represented by 
 investment in the stock of the road. The first pur- 
 pose is to give as little as possible in the way of 
 value in return for such money aid, and it is, there- 
 fore, necessary to interpose between the stock and 
 the property a sufficient number of mortgages to 
 make the prospective value of the stock of little 
 or no value. A construction company is then 
 organized, which takes the town and county aid 
 as part of its capital, and the railway corporation, 
 instead of making its contract upon the basis of 
 cash, issues to the construction company, say
 
 156 Railways in the United States 
 
 first mortgage bonds of $20,000 a mile, or possibly 
 $25,000 a mile; second mortgage bonds of $20,000 
 a mile, and stock of an equal sum, making a total 
 capitalization of $65,000 a mile, instead of the 
 $20,000 a mile at which the road could be con- 
 structed. The construction company is composed 
 generally, directly or indirectly, of the officers of 
 the road and their friends, who build the road 
 upon the basis of cash obtained by negotiating 
 through bankers the securities represented by the 
 bond issues of the railroad company ; they acquire 
 the stock for little or nothing, and also frequently 
 a large proportion, if not the whole, of the second 
 mortgage, and in prosperous times they may suc- 
 ceed in building and equipping the road on the 
 issue of the bonds secured by the first mortgage 
 alone. By this system the road comes into exist- 
 ence laboring under the necessity to earn, over 
 and above operating expenses, interest on a funded 
 debt, about double the cost of the enterprise, and, 
 if possible, to earn dividends on the stock beyond 
 that sum. That this rate of earnings has been 
 accomplished in the United States to a very con- 
 siderable degree is an illustration of the remarkable 
 development which the country has experienced in 
 every direction during the past twent}^ years, and 
 is an illustration, likewise, of the enormous growth 
 and progress of all material interests which have 
 taken place, because this mode of stock and bond 
 issue is the all but universal rule with reference to 
 the construction of new lines in the United States.
 
 Excuse for Fictitious Capitalization 157 
 
 THE EXCUSE FOR FICTITIOUS CAPITALIZATION 
 
 The excuse made by railway builders for this 
 course of proceeding is that upon the basis of an 
 ordinary profit no one would undertake the 
 extremely hazardous task of introducing railways 
 into new territory. The peculiar risks incident 
 to such an enterprise are that if the traffic fails 
 to come they lose their money, and if the traffic 
 develops they are in imminent danger of being 
 immediately compelled to divide such traffic with 
 some rival line; and that, therefore, they must 
 find the return of the capital and their profit, not 
 in waiting for the development of the business, 
 but in selling bonds and stock to the investing 
 public upon a basis of fictitious value. So long as 
 investors purchase, without proper investigation, 
 this class of securities, it is difficult to see how they 
 have any ground for complaint; as the mode of 
 manufacturing these securities is sufficiently well 
 known to be a matter of public notoriety. As to 
 the people at large, however, the effect of this 
 fictitious capitalization bears a different aspect. 
 It is true that the cost of a road and its capital 
 account have but little to do with the rate at which 
 it is required to carry to and from a few competi- 
 tive points. It has, however, very much to do 
 with the fixing of the local rates, and is a constant 
 incentive to increase the rates for the purpose of 
 paying interest and return upon all the capital 
 issues of the road. For the state to interfere and
 
 158 Railways in the United States 
 
 absolutely forbid any false capitalization, which 
 is, in other words, the anticipation in the capital 
 account of the development in time of the traffic, 
 would probably interfere considerably with the 
 undertaking of new railroad building, unless such 
 interference and prohibition are accompanied by 
 some guarantee of the field. 
 
 The two evils, unrestricted competition in rail- 
 road building and false capitalization, hang 
 together. Were railway projectors sure that a 
 certain territory would be left in their possession 
 until they could receive a return of the original 
 capital and a reasonable percentage on the outlay, 
 there would be no reason for continuing the incen- 
 tive to false capitalization in railway construction, 
 so that the promoters, by means of this quasi- 
 fraudulent element, can immediately obtain a 
 return and profit for the outlay of their money; 
 they could then contentedly wait to receive an 
 adequate return for their money upon the basis 
 of a capitalization bearing a close relation to the 
 actual cost of the construction and its equipment. 
 Justified as is the opposition to stock watering, 
 both on the part of the investor and on the part of 
 the public, the reform of this evil can only be safely 
 entered upon, and so as to avoid materially check- 
 ing new railway enterprises, with a concomitant 
 change in the policy of state and national govern- 
 ments. The fact must be recognized that railway 
 construction cannot be left absolutely to free com- 
 petition, but is a trust which should be given with
 
 Excuse for Fictitious Capitalization 159 
 
 circiimspection, and, when given, surrounded, 
 first, with guarantees to the state and to the people 
 that the men who undertake it will faithfully 
 perform their trust, and secondly, with guarantees 
 from the people and the state to the entrepreneurs 
 that they will permit them for a given number 
 of years undisturbed (under limitations as to 
 charges) to obtain the advantage of the traffic 
 development which their enterprise has created, 
 without incurring the danger of being compelled 
 to divide such traffic with another organization 
 entering upon the developed field not to render 
 additional services to the public to be served 
 within its line, but simply to take away from and 
 divide the income of the existing road. 
 
 There is no question that the system is entirely 
 vicious, but it is a system that has its roots in the 
 false view with which the public has regarded rail- 
 way enterprises by considering them as private 
 enterprises instead of public ones, and therefore 
 has given a basis for the railway speculators' 
 point of view, that it is their business, and not 
 the public's, at what rate they shall see fit to capi- 
 talize their roads; and, as the public gives no care 
 to protect the railway constructor in his enterprise, 
 the railway builder, in his turn, imagines that he 
 owes nothing to the public in that regard. 
 
 Mr. Poor, in the introduction to his Manual 
 for 1883 (and he speaks from the railroad point 
 of view), cannot but admit "that the increase of 
 share capital and indebtedness of the railroad
 
 l6o Railways in the United States 
 
 companies for the three years ending Dec. 31, 
 1882, was $2,023,646,842, the average cost per 
 mile of the new roads being in round numbers 
 $70,000." He estimates that the cash cost of all 
 the railroads built in the United States in the last 
 three years did not exceed probably $30,000 per 
 mile, or $900,000,000 in all. He estimates there- 
 fore, that more than half of this enormous capital- 
 ization is entirely fictitious. He says, with great 
 frankness: "Of course such an enormous increase 
 of liabilities over cash outlay is to be greatly re- 
 gretted, and is well calculated to create a distrust 
 of all securities, good and bad." 
 
 TELEGRAPH RIGHT OF WAY ON RAILWAY ROUTES 
 
 There is an abuse connected with railway admin- 
 istration which requires legislative remedy — the 
 granting of the right of way for telegraphic pur- 
 poses at the same time with that for railway pur- 
 poses. With every extension of an old railroad or 
 the building of a new one, the Western Union Tele- 
 graph Company is ready to step in and stretch 
 wires for the new corporation or line, under a con- 
 tract that the railway company gives to the West- 
 ern Union Telegraph Company the exclusive right 
 to maintain the telegraph service to the towns and 
 stations along the line, in consideration of which 
 the railway company can, for its purposes in the 
 management of its road and in the dispatching 
 of its trains, use the telegraph line thus built. This
 
 Future of Questions i6i ' 
 
 gives to the telegraph Hne a free right of way; and, 
 as the railway in all territory west of the Missis- 
 sippi and south of the Potomac is in reaHty the 
 main line of travel, and as along its line towns 
 spring up and population congregates, it gives to 
 that particular organization an enormous advan- 
 tage over its competitors and all new organiza- 
 tions, inasmuch as it not only gives a free right 
 of way along the line of the railways, but an 
 exclusive telegraphic service in connection with 
 the railways. This abuse, which as yet has 
 scarcely attracted public attention, came to 
 the surface only during the recent controversies 
 in relation to the stock waterings and acquisi- 
 tions of rival properties by the Western Union 
 Telegraph Company. This is also difficult of 
 remedy without legislation recognizing the mono- 
 poly character of railroad and telegraphic enter- 
 prises, and should, if permitted hereafter, be 
 allowed only on condition that such field may be 
 secured in consideration either of lower charges 
 to the community, or by providing some species 
 of sinking fund by which the community shall 
 ultimately acquire the property. 
 
 FUTURE OF RAILWAY QUESTION 
 
 This brings us to the final consideration of what 
 is the probable future of the railway question in 
 the United States. The railways now [1883] repre- 
 sent an aggregate capital of something approach- 
 
 ZI
 
 1 62 Railways in the United States 
 
 ing $7,000,000,000. A considerable proportion of 
 that total capitalization is in the hands, or largely 
 under the control, of less than one hundred men, 
 who are not the highest type of modern civilized 
 life. After giving them credit for business capacity, 
 shrewdness, and intelligence, there are still lacking 
 some elements of character which are created by 
 living up fully at all times to contracts, the basis 
 of the modern social organism. Unlike increase 
 of capitalization in any other business, increased 
 capitalization in railroad enterprises does not 
 increase the number of great capitalists engaged in 
 the business, but has a tendency to decrease it, 
 because amalgamation and consohdation proceed 
 with greater rapidity than extension of mileage. 
 Compared with the power represented by this 
 vast aggregate of capital, the power and the influ- 
 ence of nobility in any civiUzed community are 
 small. 
 
 One of the arguments in favor of a great national 
 indebtedness at the time when it was in process 
 of growth was that, though unfortunate for the 
 country to be compelled to roll up so large a debt, 
 yet it had a counterbalancing good, inasmuch as 
 it interested vast numbers of people in the success 
 of the government and in its stability by the 
 pecuniary interest of the bondholders. As the in- 
 debtedness of the United States was, at its very 
 highest, less than one half of the aggregate capital 
 now represented by the railway interest, it is clear 
 that there is a larger pecuniary interest on the side
 
 Future of Questions 163 
 
 of the railway to-day, arising from capital invest- 
 ment in its obligations, than there was at any time 
 on the side of the government. Railway capital 
 is now [1883] four times the amount of the public 
 debt. In any contest, therefore, between the 
 government and the railway enterprises, it is clear 
 that, so far as mere pecuniary interests are con- 
 cerned, the railway enterprises largely prepon- 
 derate. Adding to this the circumstance of the 
 concentration of this great railway power in com- 
 paratively few hands, the extent to which they 
 can corrupt the commonwealths is practically 
 limited only by their will. 
 
 At the time of the institution of the Government 
 of the United States and of the various States, 
 European governments were great monopolies in 
 the hands of the few. From the corrupting influ- 
 ence of a like power American statesmen sought 
 to shield the American people. Governmental 
 responsibility and prerogatives of executive power, 
 instead of being centralized, were diffused and 
 split up, and to a large extent sacrificed, for the 
 purpose of creating a larger degree of individual 
 freedom. The governments of the States of the 
 Union were therefore loosely put together, so that 
 public opinion could break through at any point 
 and influence them. Permanent large ownerships 
 of land, titles of nobility, special privileges and 
 great accumulations of capital were guarded 
 against by abolishing the right of primogeniture, 
 of patents of nobility and of accimiulations. The
 
 164 Railways in the United States 
 
 corporation was but little extended, because credit 
 was but little developed at the time of the organi- 
 zation of the United States Government. Hence it 
 was not observed that some of the evils which were 
 thus carefully intended to be guarded against, such 
 as primogeniture and accumulations, were allowed 
 to come back in more aggravated form through the 
 perpetual existence of the corporation, making 
 a continuous increase of capital accumulations 
 possible through its instrumentaHty, with the 
 aggravating circumstances that, instead of those 
 vast properties being in the hands of individuals 
 responsible for their right conduct in their indi- 
 vidual capacity, and distributed by the natural 
 process of death into a greater number of portions, 
 the great accumulations and vast possessions of 
 modern times are under the control of boards of 
 directors having less immediate responsibility than 
 the individual to legal influences, and being less 
 governed by considerations of a social character 
 properly to administer their trusts. The United 
 States Constitution and the constitutions of the 
 States contain provisions against unjust taxation 
 by carefully worded provisions that taxation shall 
 be equal. The amount collected for freight and 
 passenger traffic in the United States by the rail- 
 ways of the United States in 1882 was $770,000,000, 
 an amount double that of the revenues of the 
 United States Government. Every dollar of this, 
 as to mode and manner of expenditure, is in the 
 hands of boards of directors, with scarcely any
 
 Future of Questions 165 
 
 accountability to the public, and but a very remote 
 one to their own shareholding interests. 
 
 In every presidential election for the past 
 twenty years the railway corporations have taken 
 an important part. In the election of governors 
 in the various States and in the formation of the 
 State legislatures, in influencing appointments of 
 committees, they play a significant role, and one 
 which is scarcely any longer disguised. They do 
 this avowedly on the theory of self -protection; 
 but no irresponsible body ever stopped short at 
 self-protection, because the power which enables 
 them to protect themselves against aggression is 
 likewise a power which may be wielded in aggress- 
 ing upon the rights of others. 
 
 The mode and manner of the collection of this 
 revenue is not yet amenable to public control in 
 the United States, and yet the cost of transporta- 
 tion more closely resembles taxation in all its 
 incidents than any other method of receiving 
 return for services in the industrial world. 
 
 When the railway corporations, under the ad- 
 ministration of Mr. Fink, in July, 1882, raised 
 their rates on west-bound freight from New York 
 to Chicago, from forty-five to sixty cents per 
 hundred pounds on first class, from thirty-two 
 to fifty cents on second class, from twenty-six 
 to forty cents on third class, and from nineteen to 
 thirty cents on fourth class, every commodity 
 transported from New York to Chicago had this 
 additional tax imposed upon it as part of its cost
 
 1 66 Railways in the United States 
 
 of production in Chicago, in the same manner as 
 though the government had imposed the tax, and 
 there was Httle and even less possibiHty of escaping 
 from that imposition than there is from a govern- 
 mental tax. 
 
 It is, therefore, of at least as much importance 
 to a community to be fairly and equitably dealt 
 with in its cost of transportation as it is to be fairly 
 and equitably dealt with as to taxation. And 
 unfairness and injustice in the cost of transpor- 
 tation bring about the same disastrous conse- 
 quences to individuals and to classes as unfair and 
 unjust taxation does. It is, indeed, a mild state- 
 ment of the case to say that the injury inflicted 
 by the unfair cost of transportation is as great as 
 that inflicted by unequal taxation, because the 
 mischievous consequences of unfair or unwise 
 transportation rates are necessarily greater than 
 those that arise from unequal taxation, and dry 
 up the prosperity of a community more rapidly 
 than do bad taxing laws. Therefore, carefully 
 worded constitutional provisions designed to pro- 
 tect the community from the evils of oppressive 
 and unequal taxation by government, while leav- 
 ing this great and growing power of private taxa- 
 tion without responsibility to government in its 
 administration, are analogous to guarding the 
 public against the ravages of the wolf, and leaving 
 it unguarded from the attacks of the tiger. 
 
 That already the legislative bodies of the States 
 of the Union are as wax in the hands of the modeller
 
 Future of Questions 167 
 
 under the manipulations of these great corpora- 
 tions, is a truth which the people have been made 
 to feel in all the more densely populated States, 
 in the North and in the East. How to get back 
 their control, and yet not change it into a control 
 of a very dangerous character, by adding the 
 supervision of the expenditures of the enormous 
 revenues of the railways to the supervision of the 
 enormous revenues of the United States, and of 
 state and local administrations, administered as 
 they are in the main by politicians not much, if 
 any, above the status of the railway magnates, is 
 probably the most serious problem which, since 
 the abolition of slavery, has confronted the people 
 of the United States. 
 
 There is much keen perception and wisdom in 
 the way Professor Sumner puts the relation of 
 the Government to the people in the United States, 
 when he says that the Government, in the abstract, 
 is all of us, and, in the concrete, some of us, who, by 
 accident or chicane, obtain control, those some 
 of us being not the best of us, and that, therefore, 
 it always becomes a serious question what these 
 some of us should be permitted to do for all of us. 
 Therefore, no heroic measures can, in the present 
 aspect of political conditions in the United States, 
 safely be entered upon. These very political con- 
 ditions suggest a possible point of view from which 
 we can regard this powerful imperium in imperio 
 of the aggregated railway corporations as some- 
 thing other than an unmixed evil. The corruption
 
 i68 Railways in the United States 
 
 of our political machinery' has proceeded almost 
 simiiltaneously with the growth of the railway 
 corporation. As the basis of ci\'iHzation, the 
 security of capital is certainly of as much impor- 
 tance to a communit}^ as its form of government. 
 Peoples have become civilized, and have enjoyed 
 a certain degree of prosperity, tmder forms of 
 government other than our own. No community 
 can enjoy prosperity', or attain any high degree of 
 civilization, where property rights are not secured. 
 Property protects itself best from aggression or 
 unjust tribute when it is congregated under cor- 
 porate management, in few hands, because it 
 becomes, in its centralized form, capable of wield- 
 ing a power which the politician is bound to 
 respect. Under the corrupting conditions of ex- 
 isting ad mi nistrations, it has, perhaps, been one 
 of the modes of preserving property from the 
 grasp of those who, in national, state, and muni- 
 cipal governments, represented pubHc power 
 ostensibly, but really represented their personal 
 interests first, and placed party caucus and boss 
 interests in the second rank. In the long run, how- 
 ever, this condition becomes intolerable. No 
 community can safely pursue its course of hap- 
 piness and well-being where the actual highest 
 power wielded in the commiinity is not responsible 
 to the people, where its government is a mere 
 simulacrum, and all real power is moulded behind 
 the throne by a mo\'ing power. It is just as objec- 
 tionable if this moving power be a band of railroad
 
 Future of Questions 169 
 
 directors who move the government, as that it 
 should be the mayor of the palace, a church insti- 
 tution, a cabal of courtiers, or loose women. 
 Against such an insidious power the ballot is 
 ineffectual, and even revolution almost hopeless. 
 
 It is, therefore, essential, as a necessars' part of 
 the solution of the problem before us, that the 
 people of the United States should awaken to the 
 fact that their methods of legislation and their 
 methods of selecting legislators, their political 
 organization and poHtical administration, must 
 be reformed as well as the railway administration, 
 and that the amenabiHty of railwa}'^ to the public 
 is very largely dependent upon such reform in 
 poHtical administration. The civil ser\-ice reform 
 is already a step in the right direction, and its 
 permanent estabUshment will make thoughtful 
 investigators on current events less fearful of 
 clothing governments, both state and national, 
 with the additional powers necessary- to cope with 
 the railway problem. The other more important 
 reforms, however, are those of methods of legis- 
 lation and representation. [On these subjects 
 separate monographs by the writer have been 
 contributed to the Cyclopedia of Political Science, 
 Political Economy and United States History, 
 edited by John J. Lalor. See the articles "Legis- 
 lation" and " Representation."] 
 
 The people must concede, once for all, that the 
 line of poHcy as to railway management has pro- 
 ceeded upon a mistake. They must recognize the
 
 170 Railways in the United States 
 
 fact that in all services, the supply of which is 
 limited to a certain locality, and which, as to such 
 locality, can practically be indefinitely increased 
 without proportionately increasing the plant, there 
 is a monopoly character implanted upon such ser- 
 vice, whether it be the supply of wa3''s and means 
 of transportation, of gas, of water, of electricity, or 
 of motive power on some general plan, which takes 
 these enterprises out of the domain of competition, 
 and compels a treatment separate and apart from 
 that of strictly private enterprises. Some modi- 
 fication must be made, Hmiting the existence of 
 corporations, so that from time to time something 
 analogous to the service that death performs in 
 the individual world shall happen to their ac- 
 cumulations and power. Some plan should be 
 provided, by way of sinking fund, or gradual ac- 
 quisition by the Government, by which enterprises 
 of this character shall in time become the property 
 of the State. Such a plan of compulsory sinking 
 fund to repay capital must, of course, in all cases 
 be accompanied by some guarantee against inva- 
 sion of the field by other organizations; and, as 
 Mr. Fink observes, in his answer to inquiries of 
 Mr.Nimmo,in his report for 1878: "In the consid- 
 eration of this subject one important fact should 
 always be kept in view, to-wit, that the effect of 
 the construction of a greater number of railroads 
 than are necessary to accommodate the traffic is 
 to increase to a great extent, not decrease, the 
 cost of transportation. The interest on the cost
 
 Future of Questions 171 
 
 of two roads built for the purpose of transacting 
 the business that could be transacted by one, and 
 the cost of maintaining the two roads, are of course 
 twice as much as the interest and the cost of main- 
 taining one road." The interest and cost of main- 
 taining a road, he estimates as from 40 to 60 per 
 cent, of the whole cost of transportation. "It 
 foUov/s, therefore," he continues, "that for every 
 additional road built for the purpose of transacting 
 the business that could be accommodated by the 
 road already built, the cost of transportation is 
 increased from 40 to 60 per cent." This truth 
 borne in mind would enable the Government to 
 give practical control of the field, without thereby 
 adding to the cost of transportation. It could at 
 all times annex the condition that no more than 
 a certain percentage of profit shall be earned, and 
 that out of this surplus a sinking fund shall be 
 provided, to repay capital outlay, and that, when 
 the cost shall be repaid, the road shall become 
 public property. 
 
 We are very far yet from this solution. The 
 coturse which is likely to be run in the United 
 States in regard to the railway problem is the 
 extension of the commissioner system by State 
 legislation and its adoption by the federal govern- 
 ment. A mass of light thrown through the investi- 
 gations of these bodies upon the subject will make 
 matters appertaining to railway administration 
 more generally understood by the people of the 
 United States. And, by the time the railways are
 
 172 Railways in the United States 
 
 ripe for more heroic treatment of the question, 
 the people in all probability will also be ripe to 
 treat it more intelligently, and will have made such 
 progress in the moral development of the adminis- 
 trative machinery of the government that the 
 additional powers to be intrusted to that machin- 
 ery can safely be delegated to it by the people.
 
 CHAPTER III 
 
 [As a supplement to the foregoing, the following 
 paper read by Mr. Sterne before the Wharton 
 School, University of Pennsylvania, November 
 27, 1895, on "The Relation of the Railroads to the 
 State," is illuminating, as showing the state of 
 opinion on the railway question at that date and 
 the effect of the passage of the Interstate Com- 
 merce Act. The opinions then expressed are 
 pertinent even now. Mr. Sterne's remarks were 
 printed in the Citizen, the journal of the American 
 Society for the Extension of University Teach- 
 ing, and are here given as delivered before the 
 Wharton School.] 
 
 The Relation of the Railroads to the State 
 
 One of the wittiest of our writers has said that 
 in youth we build ladders to the moon, and in 
 mature years we take these ladders down and 
 are content to use them as wood for a cowshed. 
 
 Twenty years ago [1875], when the manifesta- 
 tions of the evil of private railway administration 
 had reached their maximum point, it seemed to 
 me that there was much to be said in favor of the 
 opinion, then prevalent among those who had 
 given serious thought to the question of railway 
 administration, that there was another way out 
 
 173
 
 174 Railways in the United States 
 
 of the difficulties that then environed us than the 
 taking over of the railways by the State. Since 
 that time the railway system of the United States 
 has so vastly increased in volume and value that, 
 from the mere bulk of the sum involved, such a 
 taking over has ceased to be a practical idea. 
 Many evils that then existed have, under civiliz- 
 ing influences without legislation, and under legis- 
 lation due to such civilizing influences, been so 
 ameliorated, if not abolished, that the pressure 
 for drastic changes has been relieved; and it has 
 become generally recognized that a state adminis- 
 tration of the railways by an actual acquisition 
 of the system must be relegated, in the United 
 States, to the limbo of discarded ideas, probably 
 never to be iu"ged again. In the earlier history 
 of railway enterprises all the charters contained a 
 provision for their purchase by the State within 
 a certain time and upon a certain basis. But no 
 effort has been made in any of the States of the 
 Union to make use of the opportunity thus pre- 
 sented. The drift of thought had taken a wholly 
 different direction. Competition — free field and 
 no favor — was regarded as the antidote against 
 monopoly; and under the stimulus of general 
 laws which enabled any given number of persons 
 to file, at nominal expense, in a public office, ar- 
 ticles of incorporation to run a railway from any 
 point to any other point, and, quite independent 
 and irrespective of public necessity — which it was 
 supposed would be gauged by the self-interest of
 
 Railroad and State 175 
 
 those who undertook the enterprise, — railway 
 projects, and railways as a fact, increased by leaps 
 and bounds in the United States, and to an extent 
 far surpassing their development in any other 
 country. From decade to decade tens of thou- 
 sands of miles were added to the railway system 
 which increased from 9000 miles in 1850 to 30,000 
 miles in i860, to 52,000 miles in 1870, to 93,000 
 miles in 1880, to 156,000 miles in 1890, and to 
 about 170,000 miles in 1895. Statistics vary 
 about this latter figiire, but for the purpose of the 
 suggestion that I make, a mere matter of 5000 
 miles is of no great consequence. What I desire 
 particularly to draw attention to is that the 
 Statesman^ s Year Book of 1895 — the most au- 
 thoritative general statistical compendium in the 
 English language — gives the total mileage of rail- 
 ways for the whole of Europe at the beginning of 
 1894 as 148,174 miles. We should, therefore, in 
 relation to any suggestion of taking over the rail- 
 way systems of the United States by the State, on 
 the theory that the State is the normal road- 
 builder and that its highways should be in its 
 own possession, be compelled to deal with railway 
 systems larger than those of the whole of Europe 
 combined, and with an amount of capitalization 
 considerably upwards of $11,000,000,000. A sys- 
 tem of government designedly so loosely put to- 
 gether as that of the United States, which never 
 was intended to supplement private energy but 
 simply to protect the lives and property of its
 
 176 .Railways in the United States 
 
 citizens and to leave them largely free to look after 
 their own development, is not, from the nature 
 of its organism, the character of its institutions, 
 and the requisite amoimt of power which is 
 wielded by it, in the least adapted for the control 
 of such an enterprise, which represents the largest 
 single investment of values in the whole country. 
 Bulk alone, therefore, as I have stated at the out- 
 set, remits all suggestions even of ultimate acqui- 
 sition of the railways by the State to the realm 
 of chimerical and scarcely academic theories. We 
 must look, therefore, in an entirely different di- 
 rection for regulation (we can scarcely speak of 
 control) of a power which has outstripped all other 
 single interests, and upon the prosperity of which 
 a very considerable proportion of the prosperity 
 of the whole nation depends. 
 
 In this connection let me give a slight sketch 
 of what has been done in other countries. 
 
 In France, every cession of the main lines was 
 limited to fifty years, within which time the lines 
 were to be permitted to remain in private hands, 
 the state having power to take over at an expert 
 valuation their rolling stock and improvements. 
 Yet, although the fifty years have elapsed, no 
 effort is being made by the French Government 
 to act upon the right possessed, but, on the con- 
 trary, the influence of the railway magnates and 
 the state of French finance have been sufficient 
 to prolong the time of cession and to make the 
 conditions of acquisition additional burdens upon
 
 Railroad and State 177 
 
 the state in the event of its ultimately taking 
 over the properties of the great radiating lines 
 issuing from Paris and going to the uttermost 
 ends of France. 
 
 Stimulated by the example of Prussia, France 
 undertook, shortly after its recovery from the 
 effects of the war of 1871, to build state lines, but 
 even there the possession of the private lines 
 made itself felt so strongly that the French ad- 
 ministration had to content itself with building 
 what is known as vicinal lines, — small connecting 
 lines between the main lines or transverse lines, 
 running from east to west instead of radiating 
 through the territory, — which have but a limited 
 business and do not pay a reasonable percentage 
 upon the capital invested. So that until 1890 
 the proportion of private lines to state lines was 
 93 per cent, in the hands of private companies and 
 only 7 per cent, in the hands of the state. 
 
 Italy allowed its railways to be built, in the 
 main, by private enterprise. In all that territory 
 lying north of the southerly line of Lombardy, 
 and in part of Tuscany, which were for many 
 years under the control of the Austrian Govern- 
 ment, the railways were governmental property, 
 while the railways south of that line were the prop- 
 erty of Italian industrial companies. When North 
 Italy fell into the hands of the Italian state, after 
 the Franco-Austrian-Italian war, the North Ital- 
 ian lines became the property of the state. That 
 being the more highly developed part of Italy, the 
 
 13
 
 178 Railways in the United States 
 
 state itself constructed additional lines, so that 
 by the end of the year 1889 about 60 per cent, were 
 owned by the state and about 30 per cent, were 
 under the mixed control of the state and private 
 ownership, and only about 10 per cent, in the hands 
 of private owners. The Italian Government by 
 that time had become so hampered and harassed 
 by its ownership and state control that it felt 
 called upon to re-let the major part of its own 
 railways, placing them in the hands of private 
 individuals, for their traffic development and 
 operation. 
 
 Germany has pursued since 1872 a wholly differ- 
 ent course. In that year it began to purchase, 
 mainly for military reasons, the railways of the 
 state, so that in 1891, in the whole of Germany, 
 less than 10 per cent, of the railways of that coun- 
 try were private enterprises. 
 
 Austria-Hungary, under the influence of the 
 example of Prussia, pursued the same poHcy, so 
 that the state, at the end of the year 1891, owned 
 32 per cent, of the whole of the railway system 
 of Austria. The state had leased about 12 per 
 cent, additional and left, therefore, under the con- 
 trol of private interests about 56 per cent. In 
 Hungary, at the end of the year 1891, the state 
 owned and leased 81 per cent, of the railway sys- 
 tem, leaving as private enterprise about 19 per 
 cent. 
 
 In Belgium, the railways are all owned by the 
 state.
 
 Railroad and State i79 
 
 In the Netherlands, 58 per cent, of the railway 
 belonged to the state in 1891, and about 42 per 
 cent, were in the hands of private individuals. 
 
 In Russia, 36 per cent, were in the hands of the 
 state in 1891, and about 64 percent, were private 
 interests. But this proportion is rapidly changing 
 because, since that time, the great transconti- 
 nental railway has been undertaken by the Rus- 
 sian Government, which, traversing the whole of 
 Russia in Asia, will change very considerably that 
 proportion in favor of the state. 
 
 In Roumania and Servian Bulgaria, the state 
 expropriated the various private railway enter- 
 prises and, since 1890, has owned them all. In 
 Portugal, about 38 percent, are in the hands of the 
 state and about 62 per cent, in the hands of private 
 enterprise. In Spain, Switzerland, and Great 
 Britain, all the railways are in the hands of private 
 enterprise. The governments of the Australian 
 Colonies, on the other hand, are the owners of 
 their own railway systems. [The various changes 
 for these governments have already been noted 
 in the previous pages and the condition of affairs 
 shown, according to the Statesman's Year Book 
 for 1 9 10, and need not be repeated here. The 
 arguments are still pertinent.] 
 
 There is, therefore, an immense field of com- 
 parison for the piupose of ascertaining which of 
 the two systems is the better for the development 
 of a country, or whether the mixed system — in 
 part private ownership and in part ownership by
 
 i8o Railways in the United States 
 
 the state — is the one which results most satis- 
 factorily. 
 
 The advantages, which have developed mainly 
 in Prussia, of a system of state ownership are, first, 
 a unital tariff system organized with absolute 
 rigor and without deviation and wholly in the in- 
 terest of the community; secondly, the capacity 
 to build with the proceeds of loans bearing a low 
 rate of interest, the principal of the obligation 
 yielding in proceeds par and above for the pur- 
 poses of the railway; thirdly, the construction of 
 lines to develop traffic in certain sections of the 
 country, without reference to immediate returns; 
 fourthly, the entire abolition of the frauds and 
 wrong-doing incident to railway finance, where 
 such finance is not subject to governmental con- 
 trol or governmental supervision; fifthly, greater 
 freedom from accidents due to the very great de- 
 velopment of a unital schedule of arrival and de- 
 parture of trains, having reference to strict con- 
 nection with other lines and entirely free from the 
 competitive annoyances to which such lines would 
 be subjected if they belonged to rival systems, as 
 they would under private ownership; sixthly, 
 prompt repairs of highways and maintenance of 
 roads, arising from the fact that there is no fund 
 belonging to bondholders or stockholders which is 
 jeopardized by such application of the income of 
 the roads. In other words, the state, being ready 
 to make up any deficit from the earnings of the 
 railways, arising from the necessity of mainte-
 
 Railroad and State i8i 
 
 nance or the adoption of some additional new 
 system of operation, can promptly devote the in- 
 come of the road, or more, if necessary, to the 
 betterment of the property for such purposes. 
 
 The disadvantages of the system are that it is 
 not developed in the community solely with ref- 
 erence to politico-economic considerations or busi- 
 ness considerations, but all other conditions are 
 equally considered, to determine upon the de- 
 velopment of any extension of the growth of the 
 lines, — such as military considerations, or, as it 
 might be in this country, political considerations 
 favoring a particular locality or district. Be- 
 sides, the development of the system is wholly 
 conditioned and dependent upon the financial 
 condition of the state, and, if any untoward cir- 
 cumstance happens to the state's finances, the de- 
 velopment of important industrial transportation 
 is checked and most injuriously affected. Of 
 course there is also a great tendency to increase 
 offices beyond an absolute necessity when the 
 railways are in the hands of the state, and there 
 is the vis inertia of state control, as against indi- 
 vidual initiative, with reference to the adoption 
 of improvements. 
 
 The political independence of a community 
 which is made to rely upon the state for this great 
 service, so essential to its welfare and progress, 
 is also somewhat impaired; and the personnel of 
 railways is not so apt to be considerate of private 
 interests when the holders of positions are wholly
 
 1 82 Railways in the United States 
 
 independent for continuance in office of the treat- 
 ment meted out to the community. It has been 
 demonstrated, however, that there is no gain in 
 the cheapness of the service of transportation by- 
 its being in the hands of the state. It is claimed, 
 and I believe with justice — indeed it seems to be 
 indisputable — that the freight tariff rates for long 
 distances in the United States are lower than they 
 are anywhere else on the face of the earth; that 
 economies in transportation have been carried 
 to a higher degree of perfection, and, though the 
 general road-bed and superstructures are not as a 
 whole as good in this country as they are in Euro- 
 pean countries, the traffic arrangements are, on 
 the whole, vastly superior. 
 
 The mixed system, such as prevails in the Neth- 
 erlands, has resulted in a controlling influence upon 
 railways in private hands exceedingly oppressive 
 to them. They are practically run in opposition 
 to a system not dependent upon income for main- 
 tenance. In this way the mixed plan operates 
 very much, in regard to the private lines, as the 
 rivalry of a bankrupt road does upon a solvent one. 
 It has a tendency to drag the solvent road into in- 
 solvency, because the insolvent road, being eman- 
 cipated, for the time being, from paying interest 
 upon its bonds and dividends upon its stock, 
 "runs wild" with reference to its freight rates and 
 simply captures business where it can. There- 
 fore, though publicists point with some degree of 
 satisfaction to the lowering of the rates which the.
 
 Railroad and State 183 
 
 mixed system has produced in the countries of 
 Europe where it has been introduced, the opinion 
 of the railway officials of the private roads is al- 
 most unanimous that such a system becomes, in 
 the end, intolerable and must either result in total 
 ownership by the state, or in the total abandon- 
 ment by the state of its railways, placing the leases 
 of them in private hands. 
 
 If we come to the conclusion, as it seems to me 
 is inevitable from what has preceded, that the- 
 ultimate taking over by the state of the railways 
 is, so far as we are concerned, wholly to be aban- 
 doned, then the duty on the part of the state to 
 exercise some degree of supervision of the manage- 
 ment — and, if some degree, what degree? — be- 
 comes a most pertinent and instructive inquiry. 
 As a result of the entire absence of state control, 
 the whole state machinery was in some States of 
 the Union under the domination of the railway 
 interests, and it was with extreme difficulty that 
 the most flagrant and manifest abuses could be 
 rectified. For many years the State of New York 
 was in such a condition. The State of New Jer- 
 sey was in such a condition, and even the State of 
 Pennsylvania was not entirely free from a certain 
 degree of domination by railway interests. In 
 the newer States of the Union, particularly in our 
 far western States, where values of many millions 
 of dollars had been, through subsidies of large 
 tracts of land, granted to the railways, — and many 
 other millions of dollars had been subscribed by
 
 1 84 Railways in the United States 
 
 counties and towns, much of which was wasted 
 and lost by reckless adventurers without produc- 
 ing to the communities a fair proportion of the 
 mileage of the railways for which they had sub- 
 scribed, and which they had subsidized, — a very 
 bitter feeling was engendered against the people 
 who had control of the railway enterprises, and 
 the consequence was ill-considered, unwise, and 
 dangerous legislation. The demagogue denounced 
 this great useful instrumentality of commerce as 
 though it were a tyrant, extracting by a process 
 akin to taxation the values of the State and Terri- 
 tory through which the tracks were operated, in- 
 stead of being the instrumentality that gave value 
 to the land and its product. 
 
 The abuses that were incident to the financial 
 administration of the railways, and to the manip- 
 ulation of the tariff rates in making local and 
 personal discriminations, were seized upon as illus- 
 trations of the normal manifestation instead of 
 the abuses of the system ; and statute after statute 
 was passed allowing arbitrary and inconsiderate 
 interference with railways, without due regard to 
 the relation of the railway within a particular 
 State or Territory to the whole network of railways 
 throughout the United States. This had to be 
 undone, after evils almost as great as those that 
 had been produced by the railway speculator and 
 manager had been created in their turn by the 
 demagogue and rural statesman. 
 
 Ovu: American communities, one after another,
 
 Railroad and State 185 
 
 had to learn the lesson "not to pour out the baby 
 with the bath water"; and it was not until the 
 enactment of the Interstate Commerce law, the 
 inquiries preliminary thereto, and the organiza- 
 tion of the Interstate Commerce Commission that 
 an intelligent and comprehensive effort was made 
 to secure a unital and intelligent system of con- 
 trol, based upon facts as well as upon theories, and 
 preceded by a knowledge of some of the evils which 
 were intended to be cured. 
 
 In the first place, it was recognized that the or- 
 dinary courts of justice could not deal, and were 
 not in a position to deal with the questions of 
 discrimination and unfair, local, or individual 
 preferences, which had become one of the main ele- 
 ments of injustice and wrong practised by the rail- 
 ways. Therefore, a specially constituted tribunal 
 was called into being, which, though not originally 
 composed of experts, rapidly became so by ex- 
 clusive devotion to the administration of one law. 
 Its application of this law to the facts of the rail- 
 way world had an educative influence upon the 
 men themselves, who were called upon to admin- 
 ister the law, as to the points of view and the tech- 
 nical data which went to make up the railway 
 charges, railway rates, and the elements that 
 govern the question of rate-making, either for the 
 transportation of persons or of goods. That there 
 crept into the law traces of the older legislative 
 conditions, as, for instance, reliance upon com- 
 petition to regulate rates, etc. — survivals of the
 
 i86 Railways in the United States 
 
 Granger laws — is a matter which was to be 
 expected. 
 
 The Interstate Commerce Act forbids, as rightly 
 it should, all preferences under like circumstances 
 and conditions in the rates to be charged for the 
 transportation of persons and goods in the same 
 direction from one part of the country to the other. 
 It circumscribes and defines the field over which 
 the Interstate Commerce law is to operate, gives 
 to the Commissioners the power of investigation 
 and determination, but unfortunately has left the 
 enforcement of its findings to the ordinary judicial 
 tribunals, which have claimed to themselves the 
 right of an independent investigation with refer- 
 ence to the correctness of the findings of the Com- 
 mission. This to so great an extent paralyzes the 
 function and power of the Commission that, at 
 some near day, an amendment to the law must be 
 had to remedy this defect. 
 
 The law seeks to prevent any pooling, either 
 directly or indirectly. This was a concession to 
 the ultra-radical school of those who had unearthed 
 evils as they existed prior to 1887, and who thought 
 they saw in pooling an effort to maintain rates 
 beyond what was fair, and therefore to extract 
 from the community an unjust tax for the service 
 of transportation. It has been ascertained, how- 
 ever, that the evils of uncertain, fluctuating, 
 though low, rates of transportation are greater 
 than those of higher and certain rates of trans- 
 portation, and that a community can better afford
 
 Railroad and State 187 
 
 to pay a high rate of taxation, provided the inci- 
 dents and biirdens of taxation are evenly distri- 
 buted, than a comparatively lower rate with such 
 incidents and burdens badly or unevenly distri- 
 buted. Therefore, many of those who have ad- 
 vocated this inhibition of pooling have been 
 weaned by the experiences of the last eight years 
 from their ideas on that subject, and there is now 
 a general consensus of opinion that pooling, under 
 the supervision of the Commission and subject to 
 its consent, should be permitted; but that it should 
 not be done unless a schedule of rates, as well as 
 the agreement to pool, and the changes that the 
 pool will make in the rates, are simultaneously 
 submitted to the Commission when the contract 
 to pool is submitted. There is also an inhibition 
 in the act against charging more for the shorter 
 than for the longer haul, with power to the Com- 
 mission to suspend the operation of the act when 
 good cause is shown. In some respects that clause 
 will have to undergo modification. This point 
 is too involved, however, for a paper of this char- 
 acter, but it has become clear that the exigencies 
 of commerce must, in due time, make the excep- 
 tion almost the rule, as to the observance of that 
 part of the act ; yet it is manifestly unjust to leave 
 a territory which is absolutely under the control 
 of a single railway — the railway's short haul being 
 the local territory generally circumscribed by the 
 lines of the State — to be taxed as the railway sees 
 fit, in order to allow it to make up its losses in-
 
 i88 Railways in the United States 
 
 curred in railway wars, when it chooses to carry 
 through long distances at ruinously low rates, by 
 an extortionate charge to the local territory. A 
 nice adjustment of this difficulty requires all the 
 statesmanship and all the calmness and delibera- 
 tion of which we are capable. 
 
 There comes next in order what has not as yet 
 been attempted — some control of the financial 
 affairs of the great railway corporations, — not a 
 control of their finances in the sense of preventing 
 issues of bonds and stocks and allowing their sale 
 at whatever prices people are willing to pay, but 
 to give some assurance that the affairs of the cor- 
 porations are honestly managed. That can be 
 done only by a system of pubhc audits of the 
 finances of railways. A step has already been 
 taken in the right direction by the additional 
 power given to the Interstate Commerce Commis- 
 sion, not only to make investigations of its own 
 motion whenever it sees fit but to prescribe a 
 unital form of railway accounts. When that shall 
 be generally conformed to, and additional strength 
 and power are given to the Interstate Commerce 
 Commission, the next step will be to provide for a 
 public audit of such accounts, which is essential 
 to prevent scandals, and therefore losses, like those 
 which have attended the administration of such 
 properties as the Atchison and Reading railroads. 
 
 Within the twenty-five years that I have been 
 an active participant in the effort to eliminate the 
 evils incident to the administration of the rail-
 
 Railroad and State 189 
 
 ways of the United States, an extraordinarily 
 marked advance has been made for the better in 
 such administration. Gross forms of personal 
 and local discrimination are no longer possible. 
 When I conducted on behalf of the Chamber of 
 Commerce and Board of Trade of New York, in 
 1879, the investigation which is known as the 
 work of the Hepburn Committee, — which sat for 
 eight months and took testimony comprised in 
 five huge volumes which are probably to be found 
 in the library of the University of Pennsylvania, 
 the local freight agent in the City of New York of 
 New York's leading line of rail — the New York 
 Central & Hudson River Railroad — admitted 
 that there was no such thing as a tariff for the 
 whole of the local freight, carried over that line 
 within the State of New York, when moved in 
 larger quantities than single packages; that every 
 rate was a special rate, varying according to cir- 
 cumstances and conditions; and, when I tried to 
 probe what these circumstances and conditions 
 were — whether there was any rule which governed 
 the rates that were fixed, — it was impossible for 
 the freight agent to fix any such rule or to state the 
 proposition in plain language. In other words, 
 a man would get one rate one day for the trans- 
 portation of goods from Rochester to New York; 
 he would get another rate the next day; and his 
 neighbor would get a different rate for the same 
 goods, shipped under the same circumstances and 
 at the same time. Of course, the monstrous in-
 
 190 Railways in the United States 
 
 equalities which arose from this condition of af- 
 fairs — inequalities sufficiently great to make one 
 man prosperous and drive his neighbor into bank- 
 ruptcy — are altogether things of the past in the 
 State of New York, and also, I venture to hope, 
 throughout the United States. 
 
 In the same investigation, it was discovered 
 that a single flour-mill at Niagara, during the ex- 
 traordinary contest for freight between the vari- 
 ous railway companies — which pulled down the 
 freight rate on flour from Minneapolis to New 
 York to ten cents a hundred — had continued to 
 work, and ship its flour to New York from Niagara 
 when every other mill within the hmits of the 
 State of New York had been compelled, under the 
 pressure of this competition, to close its doors. It 
 was claimed that this Niagara mill had machinery 
 equal to Minneapolis mills, while the other mills 
 were antiquated concerns. Not satisfied with 
 this explanation, the probe of cross-examination 
 disclosed a private contract which gave to the 
 proprietors of that mill a pro rate of the Minne- 
 apolis rate, whatever it might be, and therefore 
 enabled it to live, whilst every competitor, under 
 the same circumstances and conditions and with 
 equally good machine power, was compelled to 
 close. That form of wrong-doing, let us hope, is 
 also a thing of the past. State after State has 
 passed laws against such discriminations, and the 
 railways themselves have learned that that form 
 of iniquity kept from the coffers of the railway
 
 Railroad and State I9I 
 
 companies their proper earnings, as effectually as 
 it sowed the seed of discontent and produced the 
 nettle of disaster to the communities which were 
 subjected to the discrimination. The forms of 
 discrimination which, in the seeking for business 
 on the part of the railways, made it cheaper for 
 the New York merchant to send salt or merchan- 
 dise by boats to Boston, and thence to re-transport 
 it to the West — Chicago or St. Paul — is also a 
 thing of the past. The grosser forms of fraud by 
 the treasury of railways, such as were incident to 
 the history of Erie down to 1876, known as the 
 Fiske-Gould period, cannot, I think, again be re- 
 peated. There is a stronger watchfulness on the part 
 of the community and, in some respects, a higher 
 sense of virtue on the part of the railway managers. 
 Indeed, it is not siirprising that the railway 
 management in this country should have fallen 
 short of meeting the highest standard of morality 
 demanded by the importance and the immense 
 values of the properties, when we realize the ra- 
 pidity with which this vast interest has grown. At 
 the close of the Civil War, 30,000 miles of rail were 
 in operation and, in 1895, 170,000 miles; at the 
 close of the war, $750,000,000, and in 1895, |ii,- 
 000,000,000 represented the total investment in 
 the rail transportation industry. Where were the 
 administrators to come from? We are in this re- 
 spect placed in the position that the United States 
 was in, at the outbreak of the Civil War, with 
 reference to finding generals for its armies. The
 
 192 Railwavs in the United States 
 
 patriotism and volume of the population supplied 
 the army with men. The difficulty was how, 
 effectively, to lead them. And disaster after dis- 
 aster befell our arms because the men of the North 
 were not so miHtant in their education as the men 
 of the South, and because for several years, and 
 until the war itself developed them, there were not 
 enough competent leaders to handle the men effec- 
 tively. Most railway presidents and chairmen 
 of boards come from the ranks of other professions, 
 or from branches of employment in the railway, the 
 business of which is wholly foreign to the finan- 
 cial administration of the road. The capacity, 
 industry, and knowledge required for the successful 
 handling of the budgets of railway properties, 
 which have a gross income ranging from $12,000,- 
 000 to $40,000,000, are as great as that required 
 for the balancing of the expenditures and receipts 
 of a nation. The aggregate annual income of the 
 railways of the United States is close upon $1,250,- 
 000,000; operating expenses vary from 64 to 80 
 per cent, of the income; and upon the relative pro- 
 portion of one to the other of these factors success 
 or failure depends. That proportion is determined 
 mainly by business and physical conditions, but 
 also, to a considerable degree, by the capacity of 
 the railway managers. Of the $1,250,000,000, 
 only between $250,000,000 and $350,000,000 are 
 annually available for the payment of interest on 
 bonds and dividends on stock. Whether the net 
 earnings will suffice to meet the fixed charges, not
 
 Railroad and State 193 
 
 to speak of dividends upon stock, is largely de- 
 pendent (assuming honesty, of course, as a pri- 
 mary requisite) upon a profound knowledge of the 
 internal administration of the railway, and the 
 development of its earning power; and also, to a 
 great degree, upon a prevision, akin to genius, of 
 the condition of markets and crops, and of the 
 general financial situation. 
 
 But where are all these gifted railway financiers 
 to come from — full-grown, Minerva-like, — compe- 
 tent to administer the 175,000 miles of rail of the 
 United States, and effectively and economically to 
 handle the 800,000 men directly employed, and 
 the 3,000,000 of people indirectly employed by the 
 transportation companies of these United States? 
 Independently of the almost impossible task of 
 finding, in sufficient quantity, the extraordinary 
 capacities for the proper financial management of 
 so vast and so rapid an industrial growth as the 
 railway interest, there are certain obvious and 
 radical defects of organization of railways which 
 expose them to special danger, and which cause 
 railway enterprises to founder in very slight finan- 
 cial storms, through which other and smaller indus- 
 trial enterprises float with safety, such as the fact 
 that there is usually no reserve working-capital. 
 
 The practical result, to which I desire to draw 
 attention and to which my experience and study 
 have led me, is that we are diverted from any true 
 and useful purpose in Hstening to the suggestions 
 of ultimate ownership of the railways by the State ; 
 13
 
 194 Railways in the United States 
 
 that the example of other countries which com- 
 menced to acquire, or, in the early history of their 
 development, acquired such ownership, is of no 
 avail to us, because we are called upon to deal with 
 a thing too vast for governmental control, and 
 particularly too vast for the control of a govern- 
 ment like that of the United States, with no per- 
 manent bureaucracy, and with the whole scheme 
 of government antagonistic to the ownership or- 
 direct exploitation of any such enterprise. State 
 commissions have done some good, but on the 
 whole they have created some mischief of their 
 own, and any further development in that direc- 
 tion, except that of mere supervision and some per- 
 petual system of inquiry into the administration 
 of the railway so as to insure publicity, is of little 
 permanent value. The true development of gov- 
 ernmental control lies in the direction of strength- 
 ening the Interstate Commerce Commission as a 
 tribunal, and giving to it greater freedom of action 
 to relieve the railways from the burdensome re- 
 straints against pooling, and to relax somewhat 
 the rigidity of the rule of the long and short haul 
 clause. We must be just to the commercial neces- 
 sities of the community, but we must also put 
 under foot the effort to use those commercial neces- 
 sities for personal and local ends, and with the 
 view of creating a discrimination for the benefit 
 of A at the expense of B. We must never forget, 
 in dealing with the railway interest, that its pros- 
 perity is important, not only because it is by far
 
 Railroad and State 195 
 
 the largest bag in which the past earnings and 
 savings of our whole community are invested but 
 also because its further development is dependent 
 upon such prosperity. Immense as has been the 
 progress and general advancement of the great 
 railway net of the United States — perhaps a little 
 ahead of the wants of the period — there are still 
 many parts of our country unsupplied with this 
 instrumentality of commerce. We must leave it 
 sufficient vitality and earning power to induce 
 further and continuous investment in railway en- 
 terprises, and we must keep them open as a field 
 for the investment of the surplus earnings, not 
 only of the people of this country but of those of 
 other nations. A want of confidence has been 
 engendered in the minds of the investor both at 
 home and abroad, in this class of investment, from 
 two causes: one is the apprehension of demagogic 
 legislation in the United States and the other is the 
 fear (and this is still more potent) of the wrecking 
 of the railway by dishonest and incompetent man- 
 agers. Conservative and wise legislation will, on 
 the one hand, reinstate the confidence of the in- 
 vestor, whilst, on the other, a guard will be placed 
 against the dishonest and reckless manager by 
 strengthening instead of weakening the Interstate 
 Commerce tribunal, by the publicity of all railway 
 accounts, and by the insistence upon an inde- 
 pendent official audit of such accounts through 
 officially responsible and independent accountants.
 
 APPENDIX 
 
 A NEW LEGAL MAXIM — DE MAXIMIS NON CURAT LEX'' 
 
 [The Editor has thought it desirable to include with the preced- 
 ing Essays which are directly concerned with the questions of 
 Railway Management, a paper brought into print by Mr. Sterne 
 in November, 1888, which has to do with the general matter of the 
 relations of corporations with their shareholders and with the 
 community. There is hardly a word in this utterance of twenty- 
 three years back which is not pertinent to many conditions that 
 are to-day troubling the community and that are calling for 
 action on the part of the voters, the legislators, and the courts.] 
 
 The time has probably arrived when the results 
 obtained in the courts of the United States during 
 the past thirty years may be crystallized in a new legal 
 maxim, and I suggest as such a maxim, de maximis non 
 curat lex. With the time-worn maxim "de minimis 
 non curat lex" we are all famiHar. 
 
 Is it not the experience of every practising lawyer 
 that when he is brought into contact with one of the 
 great combinations of capital and its doings, when he 
 sees the reckless manner in which it deals with the 
 stockholding interest, the artifices connected with its 
 administration, and the misrepresentations and posi- 
 tive frauds in relation to such administration, coupled 
 with the entire immunity from responsibility ac- 
 
 ^ The Railway and Corporation Law Journal, New York, No- 
 vember 17, 1888. 
 
 197
 
 iqS De Maximis Non Curat Lex 
 
 companying the building up of huge fortunes by 
 manipulation of values and their representatives by 
 unscrupulous but extraordinarily intellectually gifted 
 individuals, that the weapons of the law break down 
 when directed^ against or brought into conflict with 
 these novel devices of capital to escape legal responsi- 
 bility, which absorb, without rendering a compensating 
 service, a vast proportion of other people's goods? 
 Take as an example the manner in which the guaranty 
 of the Manhattan Elevated Railroad Company to pay 
 eight per cent, on the stock of the Metropolitan 
 Elevated Railroad was defiantly broken, and this 
 breach maintained. Every individual purchased his 
 stock in the expectation that his own consent would be 
 necessary to reduce his income below the stipulated 
 amount of the contract. But the courts have held 
 that two boards of directors, however constituted, 
 may go throi-gh the form of revoking an agreement 
 made for the benefit of third parties and not for the 
 benefit of the board of directors originally, although 
 such revocation of the agreement may incidentally 
 benefit the members of the boards of directors voting 
 upon the subject. The courts have refused to go 
 behind the returns made by such boards of directors. 
 The decisions which have upheld the absorption of 
 rival lines by the Western Union Telegraph Co. in 
 defiance of limitations on corporate authority and in 
 defiance of the general laws of the State; the facilities 
 which have been afforded to street, steam, and cable 
 railway companies, in disregard of constitutional limi- 
 tations, to lay tracks and confiscate private easements, 
 are illustrations to the same end. 
 
 Is it not true that a stock manipulator and manu-
 
 De Maximis Non Curat Lex 199 
 
 facturer of the United States may put out issues of 
 securities of all kinds by artfully contrived representa- 
 tions publicly made through others (so long as he has 
 securities for sale) of expectations of continued 
 earnings, which illusory earnings are mere bookkeep- 
 ing to induce investments, and after the investments 
 are made, take the very opposite position, showing 
 that the earnings that had theretofore been repre- 
 sented to have been made were illusory and had not 
 been earned, that rival lines made the earnings of the 
 same amount impossible, and that the stocks and 
 bonds were issued upon expectations that have proved 
 false, and were substantially over-issues as compared 
 with the amount that can be realized out of the prop- 
 erty, and then he himself become the largest purchaser 
 at the low prices, after having sold at the highest, and 
 reorganize companies thus wrecked, upon a new basis 
 of interest-bearing securities lower than those which 
 had been issued by himself and his coadjutors a few 
 years before, making money by inflation, making 
 money by ruining the inflated property, and again 
 making money under reorganization, all engineered 
 and manipulated by himself under the cover and by 
 means of the law. 
 
 That so monstrous a transaction, yielding enormous 
 sums of money to its projectors and resulting in 
 disastrous losses to the investors, can succeed, and 
 yet that the law is powerless to attach thereto a well- 
 defined legal responsibility by way of restitution, must 
 arise from the fact that the courts are acting upon the 
 maxim of de maximis non curat lex, without knowing 
 it. 
 
 The very magnitude of the transactions makes the
 
 200 De Maximis Non Curat Lex 
 
 individual as weak and powerless against the perpetra- 
 tors as he is against the government. He can not 
 assert his rights without spending a sum larger, for the 
 purpose of securing them, than that of which he has 
 been deprived. When he does get a hearing his case 
 comes under one of the exceptions to the general 
 principles of law or equity on which he relies, and 
 which, therefore, ceases to make the case at bar appli- 
 cable to such a manipulating king, and he finally 
 abandons his case disheartened, or gets a decision 
 against him in the court of last resort on a question of 
 practice ; or, if the courts grapple with the question on 
 its merits, they find themselves lost and amazed by 
 the financial difficulties, and fail to apply to so intri- 
 cate and complex a situation the plain principles of law 
 or equity ; so that we have an illustration that when a 
 fraud or wrong takes on colossal proportions, in figiu-es 
 which make them analogous to those seen in the 
 budgets of government, the litigant has no remedy — 
 de maximis non curat lex. 
 
 There are two reasons why the law has no remedy 
 in these cases: — 
 
 1st. The intelligence of our law administrators is 
 not equal to the intelligence of our leading bankers 
 and railway magnates. This is a situation which 
 came about by the intensity of occupations and the 
 struggle for commercial supremacy in the nineteenth 
 century. The industrial development of this age has 
 been far beyond the juridical development. The law 
 has made in recent years no such progress as has been 
 made by every useful art and science. The conse- 
 quence is that the applied arts and sciences have 
 invited into their fields the strongest and best intellects
 
 De Maximis Non Curat Lex 201 
 
 of the community, and they are better equipped than 
 the law administrators in ingenuity and intellectual 
 alertness. Nimbleness of mind is more readily met 
 with in the bankers' and railway presidents' rooms 
 than on the appellate benches of the courts of our land. 
 There is learning on the one hand, and a preter- 
 naturally developed instinct of gain and the seizing of 
 opportunity on the other. The slower footed animal, 
 therefore, cannot overtake the fleeter organism. 
 Before the nineteenth century, the government and 
 the law had absorbed the strongest intellects of the 
 community. The nineteenth century widened the 
 field of activity for intellect and offered greater attrac- 
 tions and greater profitable results in directions other 
 than the law or government. Hence the new maxim, 
 de maximis non curat lex, although never before formu- 
 lated, indicates that the men for whose benefit this 
 maxim is practically applied are intellectually stronger 
 than the lawmakers and law administrators, and 
 evade the spirit of the law whilst conforming to its 
 letter. Whatever of strength there is in the law is 
 retained by the stronger interest to be turned against 
 the rest of the community. The law becomes itself 
 thereby an element of oppression, instead of the benev- 
 olent mother of Justice. 
 
 2d. The law in the machinery of formation has 
 not kept pace with the general development of the 
 community. Our lawmaking is still in the colonial 
 period. There is no division of public from local law. 
 No notice is given of local laws to those interested in 
 their passage or rejection, and at the end of each year 
 acts are either purchased or smuggled through the 
 legislative bodies affecting private interests without
 
 202 De Maximis Non Curat Lex 
 
 any knowledge on the part of the many affected 
 thereby, and unfortunately without any responsibility 
 being attached to such loose and slipshod legislation 
 to the political party in power. 
 
 The conditions of lawmaking which prevail both 
 in Congress and in the several States were well enough 
 for a sparsely settled community of planters and 
 farmers, but are utterly and ridiculously inadequate 
 as bulwarks against the pressure from those who are 
 selfishly and personally interested in profitable legisla- 
 tion for themselves as against the community. The 
 greater part of the legislation of every session is, in 
 one form or another, and frequently under the guise 
 of general laws, mere sinister and personal legislation. 
 Neither in the Federal Government nor in the several 
 States has any scheme been adopted to weigh, scrutin- 
 ize, and winnow private legislation, or to attach 
 responsibility for the public laws which are enacted 
 during a legislative session. 
 
 In every State in the Union, therefore, the maxim of 
 de maximis non curat lex is applied not only to the 
 exclusion of meritorious litigants seeking redress 
 against the long pen and bulky ledger of the great 
 stock and bond manipulators, but these same captains 
 of finance and of industry, the very men who have 
 immunity from the law from its punitory and repres- 
 sive side, have at the same time the machinery of law- 
 making in their own hands, shaped to their own ends 
 by their own ingenuity and by the neglect of the 
 commonwealth to perfect its lawmaking machinery.
 
 INDEX 
 
 Accounts, system of, Hepburn 
 Committee report on, 128; 
 under Interstate Commerce 
 Act, 188 
 Acme Oil Co., 126 
 Adams, Jr., Charles Francis, 
 views of, on railroad regula- 
 tion, 107-112; Massachusetts 
 R. R. Commissioner, 107- 
 109 
 Africa, railways in, 12 
 Algeria, railways in, 12 
 Anti-Monopoly League, 131 
 Appleton, Edward, 107 
 Appleton's American Year 
 
 Book, cited, 10 
 Argentine Republic, railways 
 
 in, II 
 Asia, railways in, 12 
 Atlantic Refining Co., 126 
 Australia, railways in, 12 
 Austria, railway development, 
 
 10, 61 
 Austria-Hungary, railway mile- 
 age, II, 178 
 
 Baker, Charles S., 120 
 
 Baltimore & Ohio R. R., 7, 
 115, 122; lease to, 98, 
 
 Belgium, railways in, 8, 11; 
 construction and control, 
 43-49, 178 
 
 Board of Trade and Transpor- 
 tation, N. Y., 112, 114, 115, 
 118, 120, 130, 189 
 
 Bolivia, railways in, 11 
 
 Boston & Albany R. R., 116 
 
 Boston & Providence R. R., 6 
 
 Boston & Worcester R. R., 6 
 Bostwick, J. A., & Co., 126 
 Brazil, railways in, 1 1 
 Bright, John, views of, 69, 70, 
 
 84 
 Browne, Balfour, 84 
 Bulgaria, railways in, 179 
 Burlington & Missouri R. R., 
 
 subsidy and grant to, 95 
 
 Campbell, Lord, opinion of, 76 
 Canada, railways in, 1 1 
 Canal and Railway Traffic 
 Act, 1854, in England, 76, 79, 
 82 
 Cape Colony, railways in, 12 
 Capitalization, railway, 11, 
 12; compared with world's 
 and public debts, 14, 162, 
 163; fictitious, 32, 124; evils 
 of and excuse for, 154-160; 
 relation of cost to rate, 157; 
 power produced by, 162-165 
 Card well, Lord, Act of 1854, 79 
 Central Ohio R. R., 98 
 Central Pacific R. R., subsidy 
 
 and grant to, 93-95 
 Chamber of Commerce, N. Y., 
 115, 117, 118, 120; Simon 
 Sterne, counsel for, in 
 Hepburn railroad investi- 
 gation, 120, 189 
 Charges, proper basis of, 142- 
 145; position of manager, 
 143; opposite view, 144 
 Cheap Transportation Asso- 
 ciation, N. Y., 112, 114 
 China, railways in, 12 
 
 203
 
 204 
 
 Index 
 
 Cincinnati, Wilmington & 
 Zanesville R. R., 98 
 
 Columbus, Chicago & Indian- 
 apolis R. R., 98 
 
 Commerce, regulation of inter- 
 state, efforts at, 133-135 
 
 Commission, royal, in England, 
 1865, 76; 1873, 84-86 
 
 Commissioners, R. R., in Mass- 
 achusetts, 106; in New York, 
 131; in other States, 132; 
 under U. S. laws, 133; 
 State Commissioners only 
 valuable for supervision and 
 inquiry, 194 
 
 Committee, English railway, 
 1844, 66-73; 1853, 75; 
 Joint Select, of England, 
 1872, 78-84 
 
 Competition, not price, regula- 
 tor in transportation, 135- 
 139; effect of, 139-141; not 
 applicable in railroad wars, 
 140; evils of unrestricted, 
 158; its relation to false 
 capitalization, 158; George 
 Stephenson on, 33, 63 
 
 Converse, James C, 107 
 
 Corporations, power of, 164 
 
 Cost of transportation, rela- 
 tion to rate, 157; unfair, 
 equals unfair tax , 1 66 ; remedy 
 for, 166 
 
 Credit mobilier, 94 
 
 Cuba, railways in, 1 1 
 
 Dartmouth College case, 104 
 
 Day, Mr., 126 
 
 De maximis non curat lex, a 
 
 new legal maxim, 197 et seq. 
 Denmark, railways in, 11 
 Devoe Mfg. Co., 126 
 Discriminations in traffic 
 
 charges, 128, 130, 145; in 
 
 N. Y., 114, 115, 119, 185, 
 
 189, 190 
 Duguid, Henry L., 120 
 
 Eastern R. R. Co., no 
 
 Egypt, railways in, la 
 
 England, railways in, 3, 11; 
 early opposition to, 4; de- 
 velopment of, 5; mileage, 11; 
 legislation after 1839, 63- 
 88; amalgamation and com- 
 petition, 75-84; joint select 
 committee of 1872, 78-84; 
 railway commission, 76, 84, 
 86; state _ supervision, 87; 
 conditions in 1895, 179 
 
 Erie R. R., grants to, 96; dis- 
 criminations on, 115, 116; 
 watered stock in, 124; in 
 trunk line, 122; Fisk-Gould 
 frauds, 191 
 
 Erie & Pittsburg R. R., 98 
 
 Europe, railways in, 11-12, 43- 
 88, 176-183; not private 
 enterprises, 62 
 
 Farmers' Alliance, N. Y,, 
 
 118 
 Fast freight lines, 99-101, 
 
 123 
 Fictitious capitalization, evils 
 
 of, 154-156, 160; excuse for, 
 
 ^.157-159 
 
 Fmk, Albert, commissioner- 
 ship of, 120-123, 165, 170; on 
 cost of transportation, 170 
 
 Flagler, Mr., 126 
 
 Florida R. R., grant to, 95 
 
 Florida & Alabama R. R,, 
 grant to, 95 
 
 Fort Wayne R. R., 98 
 
 France, railways in, 8, li; con- 
 struction and control, 49- 
 54; L^on Say, view of, 51; 
 Allain Targ^, views of, 52; 
 conditions in 1895, 176; six 
 great lines, 8-9, 49; Western 
 Railway acquired by State, 
 54 
 
 Francis, History of the English 
 Railway, quoted, 16, 73, 74 
 
 Gault, William, on railway 
 reform, 65
 
 Index 
 
 205 
 
 Germany, railways in, 11, 29, 
 178; North Germany, 54. 
 See Prussia 
 
 Gladstone, Mr., views of, 66, 
 68 
 
 Glyn, Mr., views of, 66-67 
 
 Gooch, Sir Daniel, 85 
 
 Government, absence of sup- 
 ervision, 31, 183; supervi- 
 sion, 89, 96, 141, 145; 
 subsidies, 93, right to reg- 
 ulate, 96; control, serious 
 problems of , 1 67 ; acquisition , 
 why not practical, 174-176, 
 193-195. See State 
 
 Grady, Thomas F., 120 
 
 Grand Trunk R. R., 98 
 
 Granger movement and legis- 
 lation, 101-106 
 
 Gray, Mr., 4 
 
 Great Britain. See England. 
 
 Great Eastern R. R., 77 
 
 Great Western R. R., 85 
 
 Greece, railways in, 12 
 
 Hansard's Debates, 65, 68 
 
 Haul, long and short, to be 
 regulated, 152-153; amend- 
 ment of clause, 187 
 
 Hepburn, A. Barton, chairman 
 R. R. investigation com- 
 mittee, N. Y., 1879, 120 
 
 Hepburn R. R. Investiga- 
 tion Committee, N. Y., 120, 
 1 89-191; report of work of, 
 123-131; evils shown by, 
 189-191 
 
 History and political economy 
 of railways, 1-89 
 
 Honduras, railways in, 11 
 
 Hudson, George, the railway 
 king, 66, 68 
 
 Husted, James W., 120 
 
 Illinois Central R. R., grant to, 
 
 95 
 India, railways in, 12; famine 
 in, 22 
 
 Insolvency of railroads, results 
 of, 139-141 
 
 Interstate Commerce Act, 135, 
 147. 153; value of, 185; con- 
 sideration of its provisions, 
 185-188; forbids preferences 
 and poolings, 185, discrimi- 
 nations, 186; amendment of 
 long and short haul clause, 
 187; system of accounts 
 under, i88. See Preface, viii 
 
 Interstate Commerce Commis- 
 sion, its educative influence, 
 185; additional power to, 
 188; strengthening of, the 
 remedy, instead of State 
 ownership, 194-195 
 
 Introduction, iii 
 
 Italy, railways in, 12, 62, 177; 
 state ownership, 62 
 
 Ithaca & Owego R. R., charter 
 of, 36 
 
 Jamaica, railways in, 11 
 Japan, railways in, 12 
 
 Kansas Pacific R. R., grant 
 and subsidy to, 94, 95 
 
 Kernan, Mr., N. Y. R. R. 
 Commissioner, 131 
 
 Lake Shore R. R., 97 
 
 Leavenworth, Pawnee & West- 
 ern R. R., 93 
 
 Legislation, early mistakes of 
 railway, 35; in England, 63- 
 87; in United States, 89-172; 
 Granger, 103-106; in Massa- 
 chusetts, 106-112; in New 
 York, 1 12-132; reform in 
 methods of, 169; demagogic, 
 against railroads, 184 
 
 List, Friedrich, on advantages 
 of railways, 29 
 
 Little Miami R. R., 98 
 
 London & Birmingham, R.R., 
 66 
 
 London & Midland R. R., 86
 
 206 
 
 Index 
 
 London & Northwestern R. R., 
 
 77 
 Long and short haul charges, 
 
 152, 153, 187 
 Louisville & Nashville R. R., 
 
 121 
 Low, James, 120 
 
 Manchester & Liverpool Ry., 
 
 4 
 Maryland, early railroads in, 
 
 7 
 Massachusetts, legislation in, 
 
 106-112 
 
 Maxim, a new legal — De maxi- 
 mis non curat lex, 197 et seq. 
 Maximum charges, 36-40; re- 
 gulation of, 145 
 Mexico, railways in, 11 
 Michigan Central R. R., 98 
 Michigan Southern R. R., 98 
 Middle America, railways in, 
 
 II 
 Midland R. R., 84 
 Miller, Alexander E., 84 
 Minority representation, reme- 
 dy for corporate mismanage- 
 ment, 150 
 Mohawk & Hudson R. R., 6 
 Monopoly character of corpora- 
 tions, 170; regulation of, 170 
 Morrison, James, on maximum 
 rates, 36-40; views of, 63-65 
 Munn vs. lUinois, 106 
 Murdock, Mr., 4 
 
 Netherlands, the, railways in, 
 9, 12, 179; evils of mixed 
 system in, 182 
 
 Neumann, on results of rail- 
 ways, 22 
 
 New Jersey Central R. R., no 
 
 New York, early railways in, 
 41; Act of 1850 followed by 
 other States, 42, 89; grants to 
 railways, 96; legislative ex- 
 perience of, 1 12-132; Fink 
 commissionership, 120-123; 
 
 railroad investigation in 
 
 1879, 120, 189; Hepburn 
 
 Committee report, 123-131, 
 
 189; Railroad Commission 
 
 Act, 131 
 New York Central system, 6; 
 
 consolidation of lines, 113; 
 
 watered stock, 113, 124; 
 
 discriminations, 115, 116; 
 
 special rates on, 119, 189; 
 
 trunk line, 122 
 Nicaragua, railways in, 11 
 Nimmo, Joseph, reports of, 
 
 132, 170 
 North America, railways in, 1 1 
 North Eastern R. R., 77 
 Northern Pacific R. R., grant 
 
 to, 95 
 Norway, railways of, 12 
 Noyes, WiUiam L., 120 
 
 O'Donnell, Mr., N. Y. R. R. 
 
 Commissioner, 131 
 Ohio, Madison & Indianapolis 
 
 R. R., 98 
 Oregon & California R. R., 
 
 grant to, 95 
 Outram, 4 
 
 Parsloe, Joseph, views of, 86 
 Peake vs. Chicago, Burhngton 
 
 & Quincy R. R., 106 
 Peel, Sir Frederick, 84 
 Peel, Sir Robert, views of, 64, 
 
 66, 68, 69, 84 
 Pennsylvania R. R., 6, 1 16, 
 
 122; leases to, 98 
 Peru, railways in, ll 
 Philippines, railways in, 12 
 Politics and the railway, 141, 
 
 165, 166, 167 
 Pooling, forbidden by Inter- 
 state Commerce Act, 186; 
 
 should be permitted under 
 
 supervision, 187 
 
 Pools, lOI, 121, 186-187 
 
 Poor's Manual, 7, 13, 159 
 Portugal, railways in, 12 
 Pratt, Charles & Co., 126
 
 Index 
 
 207 
 
 Preface VI 1 
 
 Price, William Philip, 84 
 
 Pro rata freight bill, efforts to 
 pass, 133; tariff, not remedy 
 for evils, 151-153 
 
 Proxy system, Hepburn Com- 
 mittee report on, 127; bill 
 passed to remedy evil of , 131 
 
 Prussia, railways in, 54-61, 
 177; State ownership in, 
 advantages and disadvan- 
 tages of, 179-181 
 
 Quarterly Review on railroad 
 legislation, 71 
 
 R. R. Commissioners. See 
 Commissioners 
 
 Railway and Canal Committee 
 in England, 80-88 
 
 Railway administrators, why 
 good ones scarce, 1 91-193 
 
 Railway, history and political 
 development of the, 1-89; 
 importance of the, i ; 
 mileage, 11, 175; effect of 
 growth, 14; its influence on 
 costs, 17; increases produc- 
 tion, 23; advantages of, 29; 
 speculation promoted by, 30; 
 fictitious capitalization, 32, 
 154-160; development, 34; 
 early mistakes of legislation, 
 35; maximum rates, 36-40, 
 145; early U. S. charters, 41 ; 
 construction and control of, 
 in Europe, 43-88, 176-183; 
 legislation in U. S., 89-172; 
 reorganization committees, 
 90; governmental subsidies 
 and grants, 93, 102; trunk 
 lines, 97; fast freight lines, 
 99; Granger legislation, 103- 
 106; railroad commissioners, 
 106, 131, 132, 194; ques- 
 tions still undetermined, 
 135. si seq.; future course of 
 questions, 162-172; granting 
 of a field for operations to, 
 
 138, 159, 161, 170; competi- 
 tion not a price regulator, 
 139-141; effect of railway 
 wars, 139-141; secret tariffs, 
 evils of, 146; secrecy of man- 
 agement, evils of, 147; 
 government regulation, 
 control or acquisition, 89, 96, 
 141-142, 145, 167, 174-176, 
 193; relation to State, 173- 
 195; falsely regarded as pri- 
 vateenterprise, i59;powerof, 
 as aggregation of capital, 
 162-170; part of, in elections, 
 165; grosser frauds no longer 
 possible, 191; proper ad- 
 ministrators not easily ob- 
 tainable, 1 9 1- 1 93; relief of, 
 by strengthening Interstate 
 Commerce Commission, 
 194 
 
 Railway and Corporation Law 
 Journal, 197 
 
 Rates, maximum, condemned 
 in England, 36; considered, 
 38-40; regulation of, 145; 
 special on N. Y. Central, 119. 
 See Discriminations 
 
 Reading R. R., iio 
 
 Reorganization Committees, 
 90-92 
 
 Report, Hepburn R. R. Com- 
 mittee, to N. Y. State, 123- 
 131; by Joseph Nimmo, 132, 
 170 
 
 Rockefeller, Mr., 126 
 
 Roumania, railways in, 12, 
 
 179; 
 Russia, railways in, 10, 12, 
 179 
 
 Say, L^on, 51 
 
 Secrecy of management, evils 
 
 of, 147 . 
 Secret tariffs, evils of, 146 
 Servia, railways in, 179 
 Shoelkopf & Matthews, dis- 
 crimination agreement, N. 
 Y., 129
 
 208 
 
 Index 
 
 Sinking fund provision for 
 government acquisition 
 suggested, i6i, 170; to be ac- 
 companied by guarantee of 
 exclusive field, 170 
 
 South America, railways in, 
 II 
 
 South Carolina, early railroads 
 in, 7 
 
 South Improvement Co., 125 
 
 Southern Pacific R. R., grant 
 to, 95 
 
 Southern Ry. & Steamship Co., 
 121 
 
 Spain, railways in, 12, 179 
 
 Special rates on N. Y. Central, 
 119, 189 
 
 Standard Oil Co., Hepburn 
 Committee report on, 125- 
 127; its profit from advance 
 knowledge, 146 
 
 State control, degree of, neces- 
 sary, 183; results of absence 
 of, in New York, New Jersey, 
 Pennsylvania, and other 
 States, 183. See Govern- 
 ment 
 
 State Grange organizations, 
 N. Y., 118 
 
 State ownership, no longer to 
 be urged, 174, 176, 183; com- 
 pared with private, 179- 
 181; in Prussia, 179-181; 
 advantages and disadvan- 
 tages of, 179-181; poUtical 
 independence impaired by, 
 181; not probable, 183. See 
 Government 
 
 State, relation of railroads to, 
 
 173-195 
 Statesman's Year Book, cited, 
 4, 9, 10, 13, 45, 54, 61, 62, 
 
 c 175,. 179 
 
 Statistics of the Railways in 
 
 the U. S., 1909, 8 
 Stephenson, George, 4; on 
 
 competition, 33, 63 
 Sterne, Simon, counsel for 
 
 Chamber of Commerce and 
 
 Board of Trade and Trans- 
 portation in Hepburn rail- 
 road investigation, N. Y., 
 1879, 120, 123-131, 189-191; 
 sketch of. Introduction, iii, 
 and Preface, vii; on De 
 maximis non curat lex, 197 et 
 seq. 
 
 Stock lists, true, to be kept, 
 148 
 
 Stock speculation, results of 
 early, 31; to be prohibited 
 to directors, 153 
 
 Stockton & Darlington R. R., 
 
 4 . 
 Subsidies, governmental, 93 
 Sumner, Prof., views of, on 
 
 relation of government to 
 
 people, 167 
 Sweden, railways in, 12 
 Switzerland, railways in, 12; 
 
 construction, 61, 179 
 
 Targ^, Allain, 52 
 
 Tariffs, evils of secret, 146; 
 publication in advance, 147; 
 penalty for failure to pub- 
 lish 147, pro rata, not rem- 
 edy for evils, 152 
 
 Tax, resemblance to transpor- 
 tation charges, 165; remedy 
 for unfair, 166 
 
 Telegraph companies, rights 
 of way over railways, evils 
 of, 160 
 
 Traffic charges, discriminations 
 in, Hepburn Committee re- 
 port on, 128, 130; proper 
 basis of, 142-145; in N. Y., 
 115, 119, 186, 190 
 
 Transcontinental Pacific R. R., 
 
 32 
 Trevitheck, Mr., 4 
 Trinidad, railways in, 11 
 Trunk Unes, organization of, 
 
 97-98 
 Trusteeship of managers in- 
 dicated, 145 
 Turkey, railways in, 12
 
 Index 
 
 209 
 
 Union Pacific R. R., charter, 
 subsidies, and grants, 93, 
 
 94 
 
 Unit rule of shipment sug- 
 gested, 145 
 
 United States, early railways 
 in, 6, 41 ; mileage of railways, 
 7, II, 175; legislation and 
 management of railways in, 
 89-172; relation of railroads 
 to state, 173-195 
 
 U. S. Board of R. R. Commis- 
 sioners, efforts to create, 
 
 133 
 Uruguay, railways in, ll 
 
 Vanderbilt, Mr., 116 
 Venezuela, railways in, il _ 
 Von Thiinen on conditions 
 before railway, 23 
 
 Wadsworth, James W., 120 
 Warden, Frew & Co., 126 
 Wars, effect of railway, 117, 
 
 1 39- 1 41; reason for halting, 
 
 140 
 Western Union Telegraph Co., 
 
 monopoly over railways, 160 
 World's Almanac, 1909, on 
 
 national debts and railway 
 
 mileage, 14
 
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