John J. (John Joseph) Lalor.

Cyclopædia of political science, political economy, and of the political history of the United States online

. (page 133 of 290)
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dle states of the United States, had, prior to the
existence of the railway, good means of intercom-
munication by canals and highways. But, in the
far westei-n states, the railway was practically the
only road. The western counties, townships and
cities regarded the expenditures on railways as
something analogous or equivalent to expenditures
on the ordinary roads, and much of this debt crea-
tion was fostered by the influences of the railway
corporations themselves, and a great part of it was
doubtless fraudulently contracted through the
bribing of local officers. In many cases the rail-
ways obtained subsidies of bonds, which they
sold, and never built the railways. A large num-
l^r of litigations, on the question of the liability
of the public bodies granting such subsidy bonds,
arose in the states themselves, many of which
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 consideration 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 princi-
pal, 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 recklessly or extrav-
agantly the bonds were issued and the burdens
assumed. — The extent of this indebtedness, how-
ever, added fuel to the spread of the granger agi-
tation. The 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 bene-
fit, was placing his particular locality at a disad-
vantage 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 west-
ern farmer's efforts to seek relief from this condi-
tion of affairs would have met with very consider-
able 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 be-
tween the state and the railroad corporation by
reason of its original charter. — In the Dartmouth
College case it was decided, in 1819, by the supreme
court of the United States, that, by the legislative
charter to a private corporation, a contract relation
was created, which, under the clause prohibiting
the states from impairing the obligation of con-
tracts, forbade the state from thereafter passing
laws substantially changing 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, provided that the legislature shall, 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 or-
ganization, followed substantially the provision of
the constitution of New York. In obedience to a
strong public sentiment, which made itself felt
d\iring 1871-4, throughout the western territory,
the legislatures of Iowa, "Wisconsin, Illinois, Ohio,
Missouri, Minnesota and Michigan, passed laws,
known as granger laws, by which railway com-
missioners were appointed, railway tariffs sought
to be regulated, preferences forbidden, and rail,
ways 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 disre-
gard 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 I87(j
in the test cases of Munn vs. Illinois, and Peake
m. 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 up.
holding the validity and right of all such state
legislation. — Panic legislation of this character
was, of course, faulty. It proceeded from an in-
sufficient examination of the whole subject. It
was, in fact, treating the symptom instead of the
disease. Notwithstanding the complete vindica-
tion, by the supreme court of the United States,
of the right of the states to enact legislation laying
down tariff rates for railways, whether remuner-
ative or not, the majority of the states which had
enacted such legislation receded from their orig-
inal position and modified their tariff rates; many
abrogated 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 rail-
ways from destroying the commerce and trade of
a locality by rival contests for through traffic. —
In Some of the eastern states, notably in Massa-
chusetts, a different course was pursued. In that
state an excellent board of railroad commissioners
was appointed by the act of the legislature of 1889,
composed of Charles Francis Adams. Jr., James
C. Converse and Edward Appleton. The duty of
these commissioners was to inspect the railway
system of the state, and to inquire into accidents
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 con-
clusions to the legislature. They had no judicial
powers, but were constituted a general board for
public investigation of railway management, thus
to draw public attention to, and to bring to bear
public opinion upon, the subject. To concentrate
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 benefit to the commonwealth
which appointed it, and of great service as an
example, beneficially imitated by other states, of
one of the most conservative modes of dealing
with railroad corporations. — Mr. Charles Francis
Adams, Jr., the chairman of this commission, in
an argument before a committee of the federal
congress in 1880, in speaking of railroad manage-
ment 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 inequality, the injustice, the discrimina-
tions 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 ex-
istence 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
Tfildly, not only in different years, but in different
seasons of the same year. We know that certain
large business firms, the leviathans of modern
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
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 goyerning 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 prece-
dent to any just and equitable system of railroad
transportation." — Coming as they do from a gen-
tleman of high authority, who for ten years held
the position of chairman of the railroad commis-
sion of the state of Massachusetts, and who at the
time when he spoke had held for one year the
position of arbitrator, selected by the great trunk
Jines to settle disputes and differences between
them as one of a court of three arbitrators volun-
tarily constituted, these words are more cogent,
•and are to be assumed as a more con-ect represen-
tation of existing conditions resulting from the
-development of the railroad system of the United
States, than any speech, either of granger suffer-
ing from his particular grievance, -or of railway
president anxious to retain his hold upon a monop-
oly interest. — The attempt to enforce upon the
railways of the state of Massachusetts the adop-
tion of a system of accounts prepared by a set of
"theorists," was vehemently opposed by the rail-
way corporations, who called it an infringement
of their chartered rights, which would prove a
mere appliance for exacting blackmail, and expose
<ietails of management concerning which the pub-
lic had no interest. The commissioners, on the
■other hand, insisted that the community had an

interest in its railroad lines, and that an adminis-
tration which was a mere hot-bed of abuses should
be thereafter managed in full public view. To
the new system of accounts prescribed, the rail-
ways quickly accommodated themselves, and,
much to their surprise, they experienced no evil
result from their rendering of accounts intelligible
to public bodies and to the public at large, but
rather found great benefit flow therefrom. — The
recent 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 re-
port 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 commissioners, in their report for
1879, draw a very correct line 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 railroads in this
country, at least through direct legislative inter-
vention. 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 de-
veloping in the public mind the idea of corporate
responsibility, and supplying the necessary ma-
chinery to act directly upon it. To bring this
about, it was necessary to force the corporate pro-
ceedings into the full light of publicity, and to
compel those responsible for railroad management,
whenever an abuse was alleged, to submit to in-
vestigation, and to try to show that the abuse did
not exist. Failing to do this, their only alterna-
tive was to discontinue its practice or to persist
in it in open defiance of public opinion. This is
the theory of railroad regulation now known as
the commissioners' system, in contradistinction to
the granger system. The public supervision of
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 practicaj experience of the Massa-
chusetts railroads in the last two years, and they
further believe and say that the system works
well." (Massachusetts Railroad Commissioners'
Report, 1879, pp. 29, 30.)— In New York state
the board of trade and transportation, a body



originally organized under the title of " The
Cheap Transportation Association," set itself the
task, in 1873, of bringing the railway corporations
of the state of New York to public amenability.
From 1850, down to that period, no serious
attempt had been made in that state to create in
railroad management any sense of public respon-
sibility. The reports which the various railroad
corporations of the state were required to file with
the state surveyor and engineer, were almost whol-
ly meaningless. No balance sheet accompanied
the reports, and the railroad corporations, in con-
forming with the letter of the law, vied with each
other in giving as little information as possible.
The state surveyor had neither power nor desire
to make any independent investigation. He sim-
ply published from year to year such information
as the railway corporations saw fit to give him.
No penalty, which had the slightest detemng
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 railroad and the Hudson
River railroad, by which they subsequently be-
came 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 pi-omptly legalized by the legislature of the
following year, which conferred authority for
exchanging the certificates into shares of stock.
Thus, these roads in their new capitalization neu-
tralized all the advantages that 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 circumstances when
the competition for through traffic with other
roads creates a strife, capitalization is of little or
no consequence, yet, on the local traific, capitali-
zation produces the result of compelling 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 10 per cent., the state can declare how
the surplus above the 10 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 pever be declared, al-
though in point of fact the railway may be earn-
ing 20 or 30 per cent, upon its actual cost of con-
struction. — This bold stroke of financial policy,
which laid the foundation for the colossal wealth
of the Vanderbilts, drew attention to this evil.

and gave to the cheap transportation association
(subsequently the board of trade and transporta-
ti6n) 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 practiced against the interest of
the commerce of New York, whereby the railroad
corporations chartered by the state of New York
made more favorable rates to Baltimore, Philadel-
phia and Boston in their charges for all west-
bound as well as east-bound freight, than to New
York. — One of the periodical treaties of peace
after a railroad war of great intensity gave to-
Philadelphia an advantage of two cents a hun-
dred 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 thaa
New York, was given the same rate. On east-
bound freight the theory upon which the dis-
criminations 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 considerable 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 hun-
dred. From Boston to Chicago salt was shipped
at fifteen cents, while 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 main-
tained 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 Cen-
tral 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 presidents, and their aid was solicited
to remove the discriminations against New York.
They made a contemptuous answer, Mr. Vander-



bilt more especially drawing attention to the facil-
ities offered by other cities to their railroad cor-
porations, and claiming that the New York Cen-
tral 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 ex-
tended to the Pennsylvania railroad by Philadel-
phia, and to the Baltimore & Ohio railroad by Bal-
timore. 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 railway companies, been smothered in one or
the other of the houses. — Finding redress impos-
sible through the voluntary action' of the corpo-
rations themselves, the chamber of commerce,
through its committee on transportation, there-
fore determined to lend its aid to procure the'
establishment of a railroad commission for the
state of New York. — Besides the grievances be-
fore referred to, another, of an extremely burden-
some character, which affected the people of the
state at large, also existed at that time. Between
1875 and 1877 the great railway corporations en-
tered into an active railroad war, and in conse-
quence of the resulting freight rates, cereal prod-
ucts'and flour were frequently carried by the com-
panies at a loss from the west to the seaboard.
That loss might possibly have financially ruined
the railway corporations of the state had a corre-
sponding reduction been made in their local tariff;
but to recoup this loss on through rates, they main-
tained, 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 of the local tariff, of the
trunk line war, in the same manner as though the
state were at war and levied a tax upon its inhab-
itants to maintain it. This discrepancy between
through and local tariffs led to the practical aban-
donment of milling at the great flouring centres of
the state of New York, such as Rochester and
Black Rock. It was impossible for them to main-
tain 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 compelled to pay more
than that for the mere carriage of the wheat to
their mills, and a higher absolute rate for the car-
riage 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 cat-
tle raising became a non-remunerative occupation
solely by reason of discriminating freight rates
against the western part of the state. These sub-
jects 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 Cen-
tral railroad company, gave additional ground for
complaint. This abuse was the entire abandon-
ment 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 ship-
ment 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 invari-
ably, on application, by the freight manager of the
New York Central railroad exercising his discre-
tion to make it as he saw fit. At the time when a

Online LibraryJohn J. (John Joseph) LalorCyclopædia of political science, political economy, and of the political history of the United States → online text (page 133 of 290)