Another defect of the original charters worked greatly to the disadvantage of independent carriers. They contained no provision as to the use of terminal facilities. The railroad companies claimed that these facilities were not affected by the public franchise and were therefore their personal property. This placed independent carriers at a great disadvantage and made in itself compet.i.tion on a large scale impossible. These carriers were thus at the mercy of the railroad companies for the transportation of their cars, and the companies never permitted their business to become lucrative enough to induce many to engage in it. It soon became apparent that under the charters granted to the railroad companies such compet.i.tion as existed on turnpikes and ca.n.a.ls was out of the question on their roads. In England the great abundance of water-ways exercised for many years a wholesome control over the rates of railway companies, until these companies, greatly annoyed by such restraint, absorbed many of the larger ca.n.a.ls by purchase and made them tributary to their systems. These companies have also acquired complete control over many important harbors.
In the United States the people depended from the beginning of the railroad era on free compet.i.tion for the regulation of railroad charges.
This desire to maintain free compet.i.tion led to the adoption of general incorporation acts, it being quite generally believed that such compet.i.tion as obtains between merchants, manufacturers and mechanics was possible among railroads and would, when allowed to be operative, regulate prices and prevent abuses. The remedy was applied freely throughout the country, but for once it did not prove successful.
Stephenson"s saying, that where combination was possible compet.i.tion was impossible, was here fully verified. The great ingenuity of the cla.s.s of men usually engaged in railroad enterprises succeeded in thwarting this policy of commercial freedom. The opportunities for those in control of railroads to operate them in their own interest, regardless of the interests of their patrons or stockholders, were so great that men of a speculative turn of mind were attracted to this business, which indeed soon proved a most productive field for them. One road after another fell into the control of men who had learned rapidly the methods employed to make large fortunes in a short time.
As the roads multiplied, transportation abuses increased. A considerable number of people early favored State control of railroads as the best means of regulating transportation, but a majority looked upon the existing abuses as being merely incidental to the formative period, and hoped that with a greater expansion of the railroad system they would correct themselves. And this doctrine was industriously disseminated by railroad managers and their allies. They lost no opportunity to impress upon the people that State regulation was an undue interference with private business and that such a policy would soon react against those who hoped to profit by it, inasmuch as it would prevent the building of new roads and would thus hinder, rather than aid, in bringing about the right solution of the railway question, viz., regulation by compet.i.tion.
They contended, in short, that State regulation would be destructive to railroads as well as to every other cla.s.s of property.
Railroad sophistry for many years succeeded in preventing the ma.s.ses from realizing that an increased supply of transportation does not necessarily lower its price, or, in other words, that railroad abuses do not necessarily correct themselves through the influence of compet.i.tion.
A large capital is required to build and maintain a railroad, which must necessarily be managed by a few persons. Besides this, the construction of a railroad practically banishes at once from its field all other means of land transportation. The railroad has thus a practical monopoly within its territory, and its managers, if left to follow their instinct, will despotically control all the business tributary to it, with unlimited power to build up and tear down, to punish its enemies and to reward its friends.
It is not true that State control checks railroad building. While it may prevent the construction of useless lines and discourage speculation, it will encourage the building of roads for which there is a legitimate demand. Stockholders as a whole do not partic.i.p.ate in the management of the roads and do not profit by railroad abuses, the origin of which may almost invariably be traced to selfish designs on the part of a few entrusted with the management of the property. Where through wise legislation these abuses are prevented, the roads are managed in the interest of all the stockholders, develop business and enjoy lasting prosperity.
It may be laid down as a general rule that the policy which best subserves the interests of the patrons of a road is always the best policy for its owners. Injustice to a railroad will interfere with its usefulness; injustice to shippers depresses production and consumption; and in either case both the road and its patrons will suffer. State control is therefore as much needed in the interest of the owners of railroads as in the interest of their patrons. What should be the nature of such control will be discussed hereafter. A full understanding of the question at issue, however, makes necessary an inquiry into the various abuses which unrestrained railroad management of the past has developed.
Perhaps no better presentation of the evils and abuses of railroads and their consequences can be found than that contained in the report of the Senate Committee on Interstate Commerce, submitted by Senator Cullom, in 1886. This report charges:
1. That local rates are unreasonably high, as compared with through rates.
2. That local and through rates are unreasonably high at non-competing points, either from the absence of compet.i.tion or in consequence of pooling agreements that restrict its operation.
3. That rates are established without apparent regard to the actual cost of the service performed, and are based largely on "what the traffic will bear."
4. That unjustifiable discriminations are constantly made between individuals in the rates charged for like service under similar circ.u.mstances.
5. That improper discriminations are constantly made between articles of freight and branches of business of a like character, and between different quant.i.ties of the same cla.s.s of freight.
6. That unreasonable discriminations are made between localities similarly situated.
7. That the effect of the prevailing policy of railroad management is, by an elaborate system of secret special rates, rebates, drawbacks and concessions, to foster monopoly, to enrich favored shippers, and to prevent free compet.i.tion in many lines of trade in which the item of transportation is an important factor.
8. That such favoritism and secrecy introduce an element of uncertainty into legitimate business that greatly r.e.t.a.r.ds the development of our industries and commerce.
9. That the secret cutting of rates and the sudden fluctuations that constantly take place are demoralizing to all business except that of a purely speculative character, and frequently occasion great injustice and heavy losses.
10. That, in the absence of national and uniform legislation, the railroads are able by various devices to avoid their responsibility as carriers, especially on shipments over more than one road, or from one State to another, and that shippers find great difficulty in recovering damages for the loss of property or for injury therefor.
11. That railroads refuse to be bound by their own contracts, and arbitrarily collect large sums in the shape of overcharges in addition to the rates agreed upon at the time of shipment.
12. That railroads often refuse to recognize or to be responsible for the acts of dishonest agents acting under their authority.
13. That the common law fails to afford a remedy for such grievances, and that in cases of dispute the shipper is compelled to submit to the decision of the railroad manager or pool commissioner, or run the risk of incurring further losses by greater discriminations.
14. That the differences, in the cla.s.sifications in use in various parts of the country, and sometimes for shipments over the same roads in different directions, are a fruitful source of misunderstandings, and are often made a means of extortion.
15. That a privileged cla.s.s is created by the granting of pa.s.ses, and that the cost of the pa.s.senger service is largely increased by the extent of this abuse.
16. That the capitalization and bonded indebtedness of the roads largely exceed the actual cost of their construction or their present value, and that unreasonable rates are charged in the effort to pay dividends on watered stock and interest on bonds improperly issued.
17. That railroad corporations have improperly engaged in lines of business entirely distinct from that of transportation, and that undue advantages have been afforded to business enterprises where railroad officials were interested.
18. That the management of the railroad business is extravagant and wasteful, and that a needless tax is imposed upon the shipping and traveling public by the necessary expenditure of large sums in the maintenance of a costly force of agents engaged in a reckless strife for compet.i.tive business.
Under the operation of the Interstate Commerce Law some of these evils have, so far at least as interstate commerce is concerned, disappeared, and others have been considerably mitigated. It cannot be expected, however, that a bad system of railroad management, to the development of which the ingenuity of railroad managers has contributed for two generations, could be entirely reformed in a few years. It is a comparatively easy task for shrewd and unscrupulous men, a.s.sisted by able counsel and unlimited wealth, to evade the spirit of the law and to obey its letter, or to violate even both its letter and spirit, and escape punishment by making it impossible for the State to obtain proof of their guilt.
It is a humiliating spectacle to see the self-debased railroad officials confessing their own guilt by refusing to testify before the Interstate Commerce Commission on the ground that they would thereby criminate themselves. Congress should have sufficient respect for this commission and for itself to provide a way to punish such recusant witnesses who are willing to degrade themselves in so base a manner. Whether the law will eventually be respected by all depends upon the vigilance and courage of the people.
That our railroad legislation is not yet perfect even its friends will admit; and as under a free government the demand of an enlightened public opinion is the first step toward the enactment of a law, it behooves the intelligent citizen to study the various railroad problems and to then exert his influence toward bringing about such a solution of them as justice and wisdom demand.
In discussing the various evils of railroad management, the author will commence with and dwell more particularly upon those abuses which maybe said to be the cardinal ones, viz., discrimination, extortion, combinations and stock and bond inflation. When these are once effectually eradicated, other abuses of railroad management which have been the subject of public complaint will not long survive them.
One of the strongest arguments that could be adduced by the founders of the American Const.i.tution in favor of the establishment of a more perfect union was that the inequality of taxes placed upon commerce by the various States was a serious obstacle to its free development. Much as the individual States dislike to give up a part of their sovereignty to a central or national power, the demand for a common and uniform system of commercial taxation was so great that they were forced to yield and ratify the new Const.i.tution. Our forefathers thus considered it a dangerous policy to permit a single State to lay any imposts upon the commercial commodities which pa.s.sed over its borders. They were rightly of the opinion that industrial and commercial liberty was as essential to the welfare of the nation as political freedom and that therefore interstate commerce should not be hemmed in or controlled within State lines, but that the power to regulate it should be lodged in the supreme legislative authority of the nation, the Congress of the United States. For over half a century Congress alone exercised the power thus conferred upon it by the people. After the introduction of railroads, however, their managers gradually a.s.sumed the right to regulate the commerce of the country in their own interest through the adoption of arbitrary freight tariffs. Freight charges are practically a tax which follows the commodity from the producer to the consumer. An arbitrary and unjust charge is therefore an arbitrary and unjust tax imposed upon the public without its consent. It is a well-established rule of society that laws should be equitable and just to all citizens.
Congress never a.s.sumed the role of Providence by attempting to equalize those differences among individuals which superior intellect, greater industry and a thousand other uncontrollable forces have ever created and will ever create. It has been reserved to railroad managers to demonstrate to the public that a power has been allowed to grow up which has a.s.sumed the right to counteract the dispensations of Providence, to enrich the slothful, to impoverish the industrious, to curtail the profits of remunerative industries and revive by bounties those languishing for want of vitality, to humble proud and self-reliant marts of trade and to build up cities in the desert. It will scarcely be claimed even by railroad managers that their policy of thus arbitrarily regulating commerce originated in philanthropic motives. They are forced to admit that it grew out of an attempt to increase the income of railroads by the extension of favors to naturally weak enterprises and to recoup by overtaxing stronger ones.
The practical operation of this system soon showed to railroad managers their power and to the patrons of railroads their dependence upon those who dispensed railroad favors. The former soon discovered that their power might be used to further their private interests as well as those of the roads, and unscrupulous patrons were not slow to offer considerations for favors which they coveted. When such favors were once granted by the officials of one road, rival roads would grant similar ones in self-protection. Thus this vicious system grew until the payment of a regular tariff rate was rather the exception than the rule, and special rates became an indispensable condition of success in business.
We may distinguish three cla.s.ses of railroad discriminations, viz.:
1. Those which affect certain individuals.
2. Those which affect certain localities.
3. Those which affect certain branches of business.
Discrimination between individuals is the most objectionable, because it is the most demoralizing of all. Where such discrimination obtains, every shipper is in the power of the railroad corporation. It makes of independent citizens of a free country fawning parasites and obsequious sycophants who accept favors from railroad managers and in return do their bidding, however humiliating this may be. The shipper, realizing that the manager"s displeasure or good will toward him finds practical expression in his daily freight bills, finally loses, like the serf, all self-esteem in his efforts to propitiate an overbearing master. He is intimidated to such an extent that he never speaks openly of existing abuses, lest he lose the special rates which have been given him, or, if he is not a partic.i.p.ant of such privileges, lest additional favors be given to his rivals and they be thus enabled to crush him. Intimidation of shippers prevailed to such an extent previous to the enactment of the Interstate Commerce Law that when, in 1879, the special committee on railroads appointed by the legislature of New York invited all persons having grievances against railroads to come before them to testify, not one shipper testified voluntarily. On the contrary, they all insisted upon being subpoenaed, hoping that the railroad managers would not hold them responsible for any statement which they might be compelled to make under such circ.u.mstances. The report of that committee stated that the number of special contracts in force within the period of one year on the New York Central and Hudson River Railroad alone was estimated by the railroad people at 6,000. Mr. Depew, when he made the statement: "In territories comparatively new, and with little responsibility on the part of the managers to distant owners, they became in many cases very arbitrary and exercised favoritism and discriminations, which led to popular indignation and legislation," had probably not heard of this.
The committee"s report further stated that these special rates conformed to no system and varied without rule, that every application for a special rate was judged by itself and with reference to its own peculiar circ.u.mstances, and that it depended upon the judgment, or rather caprice, of the officer to whom the application was made, whether and to what extent a special rate should be granted. The reductions made to privileged merchants often amounted to more than what would be a fair profit to the dealer on the commodities shipped. The privileged dealer was thus enabled to undersell his rivals and eventually force them out of business or into bankruptcy. It was not at all uncommon for railroad companies to allow discounts amounting to 50, 60, 70 and even 80 per cent. of the regular rates. The New York Central gave a Utica dry-goods merchant a special rate of 9 cents while the regular rate was 33 cents on first-cla.s.s freights. The lowest special rate granted at Syracuse was as low as 20 per cent. of the regular tariff rate on first-cla.s.s goods.
David Dows & Company and Jesse Hoyt & Company, by means of a grain rate from 2-1/2 to 5 cents lower than those given to other firms, were enabled to control in the winter of 1877 the grain trade of New York.
The railroad even extended its fostering aid to A. T. Stewart & Co., giving them a special rate "to build up and develop their business." The testimony given by Mr. Goodman, a.s.sistant general freight agent of the New York Central, in reference to the principle by which he was guided in granting special rates, is of sufficient interest to be given a place here:
Question. You made the rate for A. T. Stewart & Company? Answer. Yes, sir.
Q. Was that to build up and develop their business? A. Yes, sir.
Q. That was the object? A. That was one of the objects.
Q. January 11th, 1879? A. Yes, sir.
Q. You thought that business was not yet sufficiently built up and developed? A. No, sir; not the manufacturing part of it.
Q. How long had the factories of A. T. Stewart & Company been in existence? A. The one at d.u.c.h.ess Junction about three years, I think; it isn"t completed yet.
Q. And they were languishing and suffering? A. To a great extent; yes, sir.
Q. And you acted as a fostering mother to A. T. Stewart & Company to build it up? A. Yes, sir; I added my mite to develop their traffic; we wanted to carry the freight; boats might have carried it in the summer.
Q. Do you know anything of G. C. Buell & Company? A. Yes, sir.
Q. You wanted to develop their business? A. Yes, sir; they are at Rochester--wholesale dealers.
Q. Do you know H. S. Ballou, of Rochester? A. I do not.