Read Ebook: The Railroad Question A historical and practical treatise on railroads and remedies for their abuses by Larrabee William

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There have been but few legislative investigations of railroad abuses in this country, but the disclosures which they have made to the public are astounding. The most noteworthy of these were made by the Hepburn committee, of New York, to which reference has already been made. It is difficult to understand how a free and enlightened community could so long and so patiently bear railroad despotism. Individual discrimination might, under the veil of secrecy, long escape notice, but that a system of open and widespread discrimination affecting every non-competitive and even many a competitive point in the State, doing visible and irreparable injury to thousands of shippers, and infringing upon the rights of millions, should long be borne by a free and enlightened people, is a strange phenomenon of democratic endurance.

It would lead us too far from our subject to review in detail the many and glaring instances of local discrimination which the report enumerates. A few will suffice to show their scope and nature.

William W. Mack, of Rochester, a manufacturer of edged tools, testified that, in order to save fourteen cents per hundredweight on his freights to Cincinnati, he shipped his goods to New York and had them shipped from there to their destination, via Rochester; and that he availed himself of the same roundabout route for his St. Louis shipments, and saved thereby eighteen cents per hundredweight. In both of these cases the railroad company carried the goods 700 miles farther than the direct distance for a less charge.

Port Jervis millers had their grain shipped from the West to Newburgh, a point fifty miles to the east of them, and then had it returned to Port Jervis on the same line, at a less rate than that charged for a direct shipment.

The grain rates from Chicago to Pittsburgh were 25 cents per hundred in March, 1878, and only 15 cents from Chicago to New York.

Flour was carried from Milwaukee to New York for 20 cents, while the rate from Rochester to New York was 30 cents at the same time. It was also carried from East St. Louis to Troy at the same rate as from Rochester to Troy. The rate on butter from St. Lawrence County, N.Y., to Boston, over the Ogdensburg and Lake Champlain and Vermont Central, was 60 cents per hundred; from the nearer county of Franklin, 70 cents; it then continued to increase as the distance decreased, until it reached 90 cents at St. Albans, Vermont.

Soap shipped by Babbit & Co., of New York, to Crouse & Co., of Syracuse, paid 8 cents per box when the freight was paid in Syracuse, but 12 cents per box when paid by the shipper in New York.

It cannot even be said that New York fared worse than any of her sister States. There is hardly a business man in any community in the United States who cannot cite many cases of similar discrimination. Hundreds of well authenticated cases have been reported from every part of the country. A few striking ones may be given space here:

The Illinois Central Company hauled cotton from Memphis to New Orleans, a distance of 450 miles, at .00 a bale, while the rate from Winona, Miss., to New Orleans, about two-thirds of the distance, was .25 a bale. The same company charged for fourth-class freight from Chicago to Kankakee, a distance of 56 miles, 16 cents per hundred, and only 10 cents to Mattoon, 116 miles farther. The rate from New York to Ogden was .65 per hundred, and only .25 per hundred from New York to San Francisco. The car-load rate on the Northern Pacific was 0 from New York to Portland and just twice as much to a number of points from 100 to 125 miles east of Portland. The Chicago, Burlington and Quincy hauled stock from points beyond the Missouri River to Chicago for per car-load, while it exacted per car in Southwestern Iowa for a much shorter haul.

To what extent local discrimination has been carried by railroad companies is well illustrated by the following incident: A nurseryman residing at Atlantic, Iowa, a station on the Chicago, Rock Island and Pacific Railroad, 60 miles east of Council Bluffs, bought a car-load of grapevines at Fredonia, New York. Finding that the through rate from Fredonia to Council Bluffs, plus the local rate from the latter place to Atlantic, was less than the rate for the direct shipment from Fredonia to Atlantic, he caused the car to be consigned to Council Bluffs, intending to have it thence hauled back to Atlantic. Being short of stock at the time the train containing his car passed through his town on its way to Council Bluffs, the consignee prevailed upon the station agent to set out his car. In due time he received a request from the general office of the railroad to pay an amount equal to the rate per car-load from Council Bluffs to Atlantic. The request was promptly complied with by the appreciative nurseryman, who after all had been saved an annoying delay by the courtesy of the company's agent.

An infinite number of similar discriminations might be cited. They all show the same violation of the fundamental principles of justice and equity, the same despotical assertion of the power of the railroads to regulate the commerce of the country as the caprice or selfish interests of their managers might direct.

Discriminations between commodities, or, as they might also be called, discriminations in classification, are probably the most common of unjust railroad practices. For the purpose of establishing as near as may be uniform rules in all matters pertaining to rates, the various roads operating in a certain territory usually form traffic associations. The general freight agents of the roads that are members of the association in turn form a select body known as the rate committee. These committees of freight agents have for more than twenty years constituted the supreme authority in all matters pertaining to freight classification. The trunk line classification recognizes six regular and two special classes, and every article known to commerce is placed in one of these classes. One whom Providence has not favored with the mysterious wisdom of a general freight agent might suppose that considerations of bulk, weight, insurance and similar factors formed a basis of railroad classification. Nothing, however, is farther from the truth. Freight charges, when permitted to be fixed by railroad companies, are invariably such as the traffic will bear, and freight classifications are arranged on this principle, provided competition by water, rail or other land transportation does not demand a modification. It is, as a rule, not to the advantage of a railroad to entirely starve out any commercial or industrial concern along its line. Hence tariffs are scarcely ever made entirely prohibitory. Railroads proceed here upon the principle of the robber knight of mediaeval times, who simply plundered the wayfaring trader to such an extent as to reduce his profits to a minimum. He never stripped him, for by doing so he would have prevented his return and would have destroyed his own source of revenue. In like manner a railroad will never annihilate any weak branch of business along its line, nor will it, if it is in its power, permit any business to prosper without paying to it heavy tributes out of its profits. Every commodity is therefore made to pay a transportation tax based chiefly on its value and the profit which it yields, and all classifications are prepared with this object in view.

It is claimed by the railroad men that it is to the interest of railroad companies to do justice to all, and that the best classification for the largest number of people is also the best for the roads. If this be true, it is difficult to see why railroads should fail to consult their patrons in the arrangement of their freight classifications. Intelligent shippers may certainly be supposed to know as well as the railroad companies what classification is to their common interest. Railroad managers are naturally despotical. They do not wish and do not tolerate any outside interference with what they obstinately term their private business. Even if the general policy of the companies designed the greatest good to the greatest number, the opportunities and temptations of their agents to pursue selfish ends or take advantage of individuals in the preparation or application of their tariffs are such that in the practical execution the evil will always outweigh the good.

It is not within the scope of the present inquiry to review in detail the various classifications in force, or to point out the unjust features. The author will confine himself to showing by a few characteristic examples that the power now in the hands of the railroad companies to classify the various commodities of commerce for the purpose of rating is greatly abused and is a potent means of railroad extortion. And that it may not be charged that abuses have been cited which are a thing of the past, the examples will chiefly be taken from cases which have come before the Interstate Commission for adjudication.

A complaint was filed with the commission in 1887 by T. J. Reynolds against the Western New York and Pennsylvania Railroad Company, from which it appeared that that company charged a greater price for the transportation of railroad ties from points in the State of Pennsylvania to points in the State of New York than was charged at the same time for the transportation of lumber between the same points. The commission held that this was a case of unjustifiable discrimination and ordered the company to place railroad ties in the same class with other rough lumber. Many Western roads for years have been guilty of the same discrimination. The reasons for such a policy are obvious. A high tariff on railroad ties prevents their being shipped, depreciates their market price at home, to the sole benefit of the discriminating company, which is thus enabled to buy ties at a low price. Prohibitory rates on ties and rails are also often maintained by railroad companies to either delay or render more costly the construction of new lines which threaten to become their competitors. The Union Pacific Railroad Company several years ago even went so far as to make prohibitory rates on steel rails intended for the construction of a road which promised to become a competitor of one of its connecting lines.

From another case decided by the Interstate Commerce Commission it appeared that the Lake Shore and Michigan Southern Railway Company charged for blocks intended for wagon-hubs, and upon which only so much labor had been expended as was necessary to put them in condition, a higher rate than for lumber, claiming that such blocks were unfinished wagon material and were therefore, as articles of manufacture, subject to higher charges than raw material. The commission justly held that these blocks were as much to be regarded as raw material as the boards from which wagon-boxes are made.

In the classification of the Southern Railway and Steamship Association pearline was placed in the fourth class, with a rate of 73 cents per hundred pounds, and common soap in the sixth class, with a rate of 49 cents per hundred pounds. This latter article, when shipped by large manufacturers, enjoyed besides a special rate of 33 cents per hundredweight. Pearline and soap are competitive; there is no appreciable difference between them as regards the cost of transportation; but one commands a higher price in the market than the other, and upon this fact solely did the railroad company base its alleged right to levy upon pearline a transportation tax 120 per cent. in excess of that levied upon soap, though the service rendered by the company was the same in either case. The commission held that the discrimination made by the "special rate" of the Southern Railway and Steamship Association between pearline and common soap was unjust, and ordered that it be discontinued and that, with common soap in the sixth class, pearline be placed in the fifth.

For years the rate from Indianapolis to New York was the same for corn as for its direct products, such as ground corn, cracked corn, corn meal, hominy and corn feed. Such a tariff made it possible for Western mills to compete with similar mills that had been established in the East, since a discrimination of 5 per cent. was sufficient to absorb three or four times the profits of any Western mill. It was shown by the evidence produced that the actual cost of transportation was substantially the same for direct corn products as for the raw corn. The only defense which the railroad company could make for this discrimination was that in the carriage of raw corn they had to meet lake competition. The weakness of this argument will be perceived when it is remembered that Indianapolis is 154 miles from the nearest lake-shipping point. There is but little doubt that this discrimination was made by the railroad company because it was to its interest to haul the raw corn from the West to the East and to return it in altered form. Railroads care, as a rule, little for a waste of force, if such waste is to their own advantage.

In another case it was shown that one kind of soap was burdened with a higher transportation tax than another, irrespective even of cost, because one had been advertised as toilet and the other as laundry soap.

The principle of charging what the traffic will bear is well illustrated by the relative rates on patent medicines and ale and beer, as maintained by the Official Classification.

In a complaint made by a prominent manufacturer of proprietary medicines against the New York Central and other roads, it was shown that the complainant's products were shipped at owner's risk, and that they were in bulk and intrinsic value similar to ale and beer, but that in spite of these analogies the former were rated as first-class and the latter as third-class goods, simply because they retailed at a higher price.

Another unwarrantable discrimination is that in favor of live stock and against dressed beef. While Mr. Fink, the commissioner of the Trunk Line Pool, himself admitted that the cost of carrying dressed beef from Chicago to New York was only 6-1/4 cents per 100 pounds in excess of the cost of hauling live stock, the trunk lines maintained on dressed beef a rate 75 per cent. higher than that on live cattle. The railroad companies asserted that this was due to those people in the East whose living depended on the live-stock interest. The railroads have in this assumed a paternalism which would not be tolerated even in the Government. To protect the East, railroads will not permit the West to engage in new industries.

The position which the Interstate Commerce Commission has assumed in interpreting the rights of shippers under the law which railroad companies are bound to respect in the preparation of their tariff sheets and classifications cannot but be most gratifying to the people. In a decision relating to the classification and rates for car-loads and less than car-loads, filed March 14, 1890, the commission laid down the following rules for the guidance of railroad companies:

"1. Classification of freight for transportation purposes is in terms recognized by the act to regulate commerce, and is therefore lawful. It is also a valuable convenience both to shippers and carriers.

"2. A classification of freight designating different classes for car-load quantities and for less than car-load quantities for transportation at a lower rate in car-loads than in less than car-loads is not in contravention of the act to regulate commerce. The circumstances and conditions of the transportation in respect to the work done by the carrier and the revenue earned are dissimilar, and may justify a reasonable difference in rate. The public interests are subserved by car-load classification of property that, on account of the volume transported to reach markets or supply the demands of trade throughout the country, legitimately or usually moves in such quantities.

"3. Carriers are not at liberty to classify property as a basis of transportation rates and impose charges for its carriage with exclusive regard to their own interests, but they must respect the interests of those who may have occasion to employ their services, and conform their charges to the rules of relative equality and justice which the act prescribes.

"4. Cost of service is an important element in fixing transportation charges and entitled to fair consideration, but is not alone controlling nor so applied in practice by carriers, and the value of the service to the property carried is an essential factor to be recognized in connection with other considerations. The public interests are not to be subordinated to those of carriers, and require proper regard for the value of the service in the apportionment of all charges upon traffic.

"5. A difference in rates upon car-loads and less than car-loads of the same merchandise, between the same points of carriage, so wide as to be destructive to competition between large and small dealers, especially upon articles of general and necessary use, and which, under existing conditions of trade furnish a large volume of business to carriers, is unjust and violates the provisions and principles of the act.

"6. A difference in rate for a solid car-load of one kind of freight from one consignor to one consignee, and a carload quantity from the same point of shipment to the same destination, consisting of like freight or freight of like character, from more than one consignor to one consignee or from one consignor to more than one consignee, is not justified by the difference in cost of handling.

"7. Under the official classification the articles known in trade as grocery articles are so classified as to discriminate unjustly in rates between car-loads and less than car-loads upon many articles, and a revision of the classification and rates to correct unjust differences and give these respective modes of shipment more relatively reasonable rates is necessary and is so ordered."

The efforts which the commission has made to bring about a uniform classification throughout the country are in the right direction, while the results of its labor are not yet satisfactory.

In their fifth annual report, the Commissioners, after giving an account of their efforts and the shuffling and double-dealing of the railroad companies with them upon this matter of uniform classification, said:

"Its conviction remains unchanged that the necessities of commerce require that the existing classifications be consolidated, and that this result should be accomplished as speedily as may be found practicable; and it does not feel justified in asking for the further efforts of the carriers the same measure of indulgence which from time to time it has heretofore suggested should be extended to them, and which was thought to be required in the public interest.

"The commission can not but think that if legislation to that end be enacted by Congress the carriers will speedily consummate the reform already begun in this direction. It is therefore recommended that an act be passed requiring the adoption within one year from the date of its passage of a uniform classification of freight by all the carriers, subject to the act to regulate commerce, and providing that if the same be not adopted within the time limited, either this commission or some other public authority be required to adopt and enforce a uniform classification."

The present confusion which exists in the classification and rates of the seventeen hundred railroad organizations of the country makes it difficult for the commission to do justice to all interests and localities. With the adoption of a uniform classification it is to be hoped that in time many of the present inequalities will be adjusted, especially if an intelligent public sentiment upon the subject of railroad regulation is maintained. A prominent railroad manager in the East, whose devotion to corporate interest is only equaled by his political ambition, has recently made repeated efforts to convince the people that railroad abuses are things of the past and that, if any such abuses still linger in isolated districts, they are simply unavoidable exceptions to the rule which will soon have to yield to the general spirit of fairness and amity for which, in his opinion, the railroads have of late been distinguished. He reasons that the law has fulfilled its mission, that the railroads have reformed, and that it now behooves the people to relent and to extend to the much persecuted corporations the hand of friendship and good will. The postprandial eloquence of this gentleman has often suavely intimated that the repeal of the Interstate Commerce Act would be the most opportune recognition of restored confidence.

Still bolder champions of the railroad cause do not hesitate to demand the repeal of the law. It is not likely that the sophistry of railroad hirelings will triumph over the practical logic of an intelligent public. No law, be it ever so wise, can in the space of a few years correct all the abuses which half a century of unbridled railroad domination has developed. Yet, since both the friends and the enemies of the law agree that it has been partially successful in its operation, it should be continued and improved to keep it in harmony with new conditions and a progressive public sentiment. It is claimed by railroad managers that the adoption of a uniform classification will remove the only vestige of discrimination still left. This is not true, for by far the largest number of complaints that have recently been brought before the Interstate Commerce Commission charged personal and local discrimination independent of any question of classification.

The repeal of the Interstate Commerce Law, or the adoption of such amendments as are demanded by railroad men, would be interpreted by them as an abandonment of all its principles and would inaugurate an era of unprecedented railroad oppression. History ever repeats itself. Unchecked license will always lead to arrogance and despotism, and any power which is long permitted to defy the state will in time control it. It is not likely that the people of the United States can be induced to demonstrate to the world that democratic government is incapable of profiting in the dear school of experience.

Our railroad legislation contains no principle that is not found in the common law. Its maxims are our birthright and will be the birthright of our children and children's children, and while railroad companies may be able in the future, as they have been in the past, to violate the law temporarily with impunity, they will never be able to prevail upon the American people to abandon the policy of railroad reform which the passage of the Interstate Commerce Law inaugurated.

The Interstate Commerce Commissioners say in their sixth annual report:

"Whoever will read the report of the special committee of the United States Senate, commonly called the 'Cullom Committee,' will be astounded at the magnitude and extent of railroad abuses brought to light by their investigation. Those unfamiliar with the facts made public at that time can hardly believe the outrages which were proven to exist and the manifold devices by which the most flagrant injustice was perpetrated. A single illustration will furnish a better reminder than extended comment.

"It appears from that report that the Standard Oil Company, in one instance at least, boldly demanded from a certain railroad that its shipments should be carried for 10 cents a barrel; that all other shippers should be charged 35 cents a barrel on the same article, and that 25 cents of the 35 paid by such other shippers should be handed over by the railroad to the Standard Oil Company, and the penalty threatened for non-compliance with this impudent extortion was a withdrawal of its entire business.

"The foregoing statements but imperfectly describe the situation which existed when the Interstate Commerce Law was enacted. In any reasonable view of the case it was too much to expect that the common and long continued abuses of railroad management could be corrected in less than half a dozen years, or that the first scheme of legislative regulation would prove adequate to that end. It would be contrary to all experience if so great and radical a reform could be thus speedily accomplished, or if the initial statute should be found sufficient to bring it about. The law was the outgrowth of an aroused and determined public sentiment, which, while united in demanding Government interference, was divided and uncertain as to the best methods of affording relief. Like all attempts in a new field of legislation, the statute was a compromise between divergent theories and conflicting interests. It was scarcely possible that it should be so complete and comprehensive at the outset as to require no alteration or amendment. Those who are familiar with the practices which obtained prior to the passage of this law and contrast them with the methods and conditions now existing will accord to the present statute great influence in the direction of necessary reforms and a high degree of usefulness in promoting the public interest.

"Whoever will candidly examine the reports of the commission from year to year, and thus become acquainted with the work which has been done and is now going on, will have no doubt of the potential value of this enactment in correcting public sentiment, restraining injustice and enforcing the principle of reasonable charges and equal treatment. Imperfections and weaknesses which could not be anticipated at the time of its passage have since been disclosed by the effort to give it effective administration. The test of experience, so far from condemning the policy of public regulation, has established its importance and intensified its necessity. The very respects in which the existing law has failed to meet public expectation point out the advantages and demonstrate the utility of Government supervision.

"Moreover, it may be fairly claimed that much greater benefits would have been realized had the statute as enacted expressed the evident purpose of those who framed it, and received a construction according to its apparent import. It is not too much to say that judicial interpretation has limited its scope and ascribed to it an intent not contemplated when it was passed. If its supposed meaning, as understood at the time of its passage, had been upheld by the courts, it is believed that its operation would have been much more effective and its usefulness greatly increased. So far as failure has attended the efforts to give it proper administration, that failure can be mainly attributed to differences between its apparent meaning and the judicial interpretation which some of its provisions have received; and the commission is of the opinion that if the present law could be so altered as to express clearly and beyond doubt what it was evidently intended to express at the time of its enactment, it would prove, even without other amendment, an instrumentality of the highest value in removing the evils against which it is aimed.

"The specific instances in which the statute has received judicial construction, and the limitations upon its scope and meaning which the courts have imposed, will be alluded to at greater length in another part of this report.

"It seems proper, however, to observe in this connection that the effect of these decisions in weakening the law and preventing its enforcement has been greatly exaggerated. The impression has been created in many directions that judicial construction has invalidated the essential feature of the statute and condemned the general principle which lies at its foundation. That impression cannot be too speedily corrected, for nothing has been decided which permits such an inference. On the contrary, neither the power of the national legislature to regulate the transportation of interstate commerce nor the general policy of the existing law has been questioned by any tribunal."

Probably no law in the United States has ever before been so fiercely attacked at all of its vital points as has this law. It is not strange that among the great number of National and State courts the railroad companies have found occasionally a judge ready and willing to assist them in breaking it down, but upon the whole the judiciary has been disposed to co-operate with other departments of the Government in their efforts to secure effective regulation of the transportation business.

STOCK AND BOND INFLATION.

The complaint is frequently heard from railroad men that our freight rates are too low, and in support of it the statement is usually made that the greater part of the railroad stocks of the United States pays dividends considerably smaller than the average interest realized by capitalists on money loaned or invested in other enterprises.

The financial success of railroads soon attracted the cupidity of financial adventurers--men of great energy, but small means--whose aim was to secure the greatest possible returns with the least possible outlay of money. With the introduction of these elements into railroad circles the era of speculation commenced. Take the line just referred to. In 1852 the average number of miles operated was 62, and the year following, 90. But while the number of miles operated increased less than 50 per cent., the capital stock of the company grew from 4,193 to ,362,559, and its debt from ,145 to 2,287. The capitalization of the road was thereby increased from ,000 to ,000 per mile, and this was done for the purpose of making the capital appear adequate to its earnings. Nearly all railroads became in time the foot-balls of shrewd manipulators. They were bonded before they were constructed, and often for more than the value of the completed road. Stocks at the best only represented nominal values and were given as premiums to the bondholders or promoters of the road.

But the science of stock-watering did not reach its fullest development until during the period of railroad consolidation. Fictitious values were now created as often as a new consolidation took place. Watered stocks and bonds were watered again and again, until they represented little more than a purely imaginary capital upon the basis of which dividends might be declared. Take the case of the New York Central and Hudson River Railroad companies, which consolidated in 1869 with a capital of 3,110,137.31. The former of these roads was organized in 1853 by the consolidation of ten smaller roads connecting the cities of Albany and Buffalo. The capital stock of these companies amounted to ,799,800, of which ,852,870 was claimed to have been paid in. Their funded debt was ,497,526. It is impossible at this day to ascertain the original cost of all these roads, but it is certain that the above sums represent about three times the amount actually expended for their construction.

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