John J. (John Joseph) Lalor.

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

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legislative investigation was ordered, there were in
existence on the line of th"fe New York Central rail-
road upward of 6,000 different contracts varying
in the most arbitrary manner the published sched-
ule rate for the carriage- of local freights. Under-
lying these special rates there was neither prin-
ciple based upon car loads or train loads as con-
tradistinguished from single packages, nsr 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 at the hour. The charge that such dis-
criminations and special rates existed, when made
to the legislative committee appointed in 1879,
was at first flatly denied, but within the first few
days of the investigation which followed, and to
which reference will presently be made, it was
overwhelmingly proved. — Public opinion had be-
come so agitated upon the subject that at last all
the opposing influences of the railways in the as-
sembly were overcome. An investigation of the
railway system of the state of New York was or-
dered by the legislature of 1879, and a committee
appointed to investigate the abuses alleged to
exist in the management of the railroads of the
state of New York. This committee was com-
posed of A. B. Hepburn as chairman, H. L.
Duguid, James Low, William L. Noyes, James
W. Wadsworth, Charles S. Baker, J. 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 counsel to conduct the examination, and
stated that the committee would give to such coun-
sel 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
of this article as its counsel to conduct the inves-
tigation, and then during a period of eight months
the investigation proceeded in the taking of testi-
mony and the preparation of its report. — Prior
to the appointment of this committee a great
change had taken place in the management of the



great trunk lines in their relation to the public.
Mr. Fink— who had been the vice-president of the
Louisville & Nashville railroad, and who was
commissioner or chairman of the cominittee of
the Southern railway and steamship association,
■which was comprised of twenty-flve 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-
tring at New York, Boston, Philadelphia and Balti-
more. Down to that period of time every attempt
to create a " joint purse," as it is called in Eng-
land, 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 fruitless.
Scarcely was the ink dry on the contract made
between the railway presidents before each par-
ticular 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 presidents
desired to maintain the contract in its integrity,
they found it impossible to control the various
freight lines doing business over their own roads,
and the contracts were broken almost as soon
as made. Thereupon, in June, 1877, Mr. Pink
was appointed commissioner of the four trunk
Hues, the Baltimore & Ohio, the Pennsylvania,
the Erie, and the New York Central & Hudson
River railroads. In December, 1878, he was fur-
ther appointed commissioner of the combined
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 oflEered, and to send to the other lines
■which had a deficiency whatever surplus was of-
fered 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 main-
taining rates, and secondly, in stopping I-ailroad
■wars between the contracting parties. A railroad
■war, while, on the one hand, it reduces rates, pro-
duces, on the other hand, great demoralization
in business by the element of uncertainty in com-
mercial transactions caused by the absence of a

certain rate, vastly more expensive in its ultimate
results than the higher rate for freight. — The all
but unanimous report of the investigating com-
mittee appointed in 1879 was made after an ex-
haustive inquiry, contained in five closely printed
volumes of testimony. This committee, in sum-
ming up the condition of railroad management as
they found it in the state of New York, pass in
review the various abuses which have grown up
under the management of these great highways
by private corporations without responsibility to
the state. They refer to the evil of the drawing
room or sleeping car companies, which, by their
contracts with the railroad companies, create a
special interest that diminishes the return of the
shareholders of the railroad companies. They
speak of the fast freight lines and express com-
panies as now conducted as free from evil. They
condemn the methods by which the stock yards
at the terminal points of the railways are let out
to individuals, and speak of this as an instru-
mentality which is usually attended with addi-
tional taxes upon transportation. They consider
the suborganizations of railways in the way of coal
companies and elevator associations, which are
designated as barnacles upon commerce, as organ-
ized for the purpose of tolling the commerce of
that port (Buffalo) to the greatest possible extent.
On alluding to watered stock the committee refers
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 cov-
er all the additional value of the road, as repre-
sented by stock and bonds and interests in other
corporations, while it was capitalized at about
$155,000,000 ; that its construction account cov-
ered 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, is estimated
by them to be not less than $7O,0O0,G0fr. 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 con-
solidation thus effected, amounted to a total of
$33,000,000, and that at the time when the firet
consohdation 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
consolidation of the New York Central and Hud-
son River railroads, over $44,000,000 was added to
the combined capital of both the Hudson River
and the New York Central roads, by stock divi-
dends of 80 per cent, on the New York Central
road in 1868, and 85 per cent on the Hudson
River road. — The committee pass 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 touch upon the abuse fully
developed before them, connected with the Stand-



ard 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 improve-
ment 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 maintain the business of the South im-
provement company against loss or injury by
competition, and that the roads would lower or
raise the gross rate of transportation over their re-
spective railways and connections, to such an ex-
tent as might be necessary to overcome all com-
petition. — When the agreement became public,
the legislature of Pennsylvania was compelled by
public opinion to vacate the charter of the corpo-
ration. A more ingenious and secret agreement,
however, was subsequently made with the Stand-
ard oil company, by the railroad corporations, se-
curing to that corporation the objects which were
intended to be secured to the South improvement
company. This company, originally composed
of a few enterprising oil men of the western
states, gradually absorbed into its management
the Standard oil company of Cleveland, the Stand-
ard 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
Levoe manufacturing company of New York, J.
A. Bostwick & Co., and Messrs. Rockfeller, Day,
Jlagler, Warden, Frew & Co., and others. — This
combination against the remainder of the trade,
now banded together under the name of the
Standard oil company, is characterized by the
committee as a flagrant violation of every prin-
ciple of railroad economy and natural justice. It
re8ulted in driving out of business nearly all com-
petitors, and enabled the Standard oil company to
purchase, at such rates as they saw fit, the refiner-
ies distributed over the United States which they
desired to control either for the purposes of man-
ufacturing or to dismantle. This threw the pro-
duction, distribution and refining of oil into the
hands of a single corporation, to the extent, esti-
mated at that time, of 95 per cent, of the whole
product. In this regard the committee say, that
from January to October, 1879, the total shipments
from the oil regions to all points were 13,900,340
barrels, and that all shipments to the seaboard
■would have easily borne one dollar more per bar-
rel than they did (the rate then being about twenty-
five cents a barrel) ; that, tested by the charge
which the roads Imposed upon every other com-
modity, it should have borne that much more;
and that all the trunk lines have grown into such
relations with this oil company that they were
forced to forego all these millions they might have
«amed, and compelled to look to the other prod-
ucts 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 purchase of voting power from persons,
mainly bankers, in whose names large amounts of
stock were registered, but which had been sold
and distributed to their customers, and were left
on the stock books of the companies, standing in
their names, simply for prudential reasons. This
situation gave to such persons a large voting
power in the railway without a substantial inter-
est 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 permanent interest in the
road, it was a coiTesponding temptation to sell the
power, the evil effects of which sale they were
not called upon personally to bear. The commit-
tee, therefore, recommended the passage of a bill
to remedy this abuse. — The committee likewise
condemned the system of the 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 ship-
pers, located in the same town, rates varying as
much as thirty cents a hundred. The committee
investigated the theory that had been advanced by
all the railroad experts of " chai'ging a trafBc 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 war-
ranted it, and the product could bear it. It would
be diflBcult to make a criticism upon that raise
which public judgment would sustain, but we are
distinctly told that public interest plays an insig-
nificant role in the theatre of railroad manage-
ment. It is at best but a service waiting upon
the interest of the stockholders. The wrong con-
sists 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 con-
sideration 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 rdade or not, whether it shall result in
a profit or loss. Thus, under this system of
management and this method of giving rates, is
every merchant, every manufacturer, every ship-
per, and, through them, every individual along
the 5,500 miles of railroad in this state, with its
five hundred millions of capital, measurably in the
power of these corporations. Conciliate their good
will, court their favor, and favorable rates will fol-
low ; incur their hostility, and the margin of their
displeasure may be read on your freight bills." —
The committee speak of the enormous political
influence which is wielded by corporations having
in their employ, in 1879, upward of 30,000 voters.



They speak also of the contemptuous disregard
exhibited by the railroad corporations of the state
to the milUng 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 conclude their analysis of the
testimony with the citation of the Shoelkopf &
Matthews agreement, whereby the New York
Central railroad bound itself to carry to New
York, for these millers situated at Niagara Falls,
at a pro rate of the through east-hound rate on
grain or flour, whatever it may be, which enabled
these millers to maintain their mill in full opera-
tion while their neighbors were going out of busi-
ness simply because they had not as favorable a
contract. The contract appeared to have been
made for five years, and was to be valid on con-
dition that it was to be kept secret. Personal
discrimination could no farther go than was illus-
trated in that case. — This investigation proved
conclusively that every charge that had been made
against the railway corporations by the commer-
cial 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 public was
only in so far regarded as any tyrant would re-
gard the public ; that it was dangerous to exas-
perate them too much ; and that as freight charges
are in the nature of taxes, if you want a continu-
ous revenue from taxation, it must stop short of
confiscation. — The recommendations of the com-
mittee, therefore, were embodied in bills which
embraced, in substance, the commission bill which,
with some slight modifications, had been pre-
viously drafted at the request of the board of
trade and transportation ; a bill upon the subject
of railway proxies, railway consolidations and
stock waterings ; a bill to regulate the transporta-
tion of freight by the railroad corporations, so as
to prevent unjust discriminations ; and a bill to
insure a uniform system of accounts and a differ-
ent system of reports. — Of these bills, the one
to create a board of commissioners became law ;
likewise the one, with considerable modification
and amendment, upon the subject of proxy vot-
mg ; also the one which prescribed a different
method of rendering accounts. The other bills
failed of adoption. — During this period, the
valuable reports on internal commerce, issued by
Mr. Joseph Nimmo, chief of United States bu-
reau of statistics, aided considerably in creating an
enlightened public opinion on the relations of the
railways to the state, and the part that they per-
form in the movement of the commerce and de-
velopment of the industry of the nation. — The
New York commission bill was passed, and Gov.
Cleveland, as one of his first acts after his install-
ment into oflBce, appointed Messrs. Kernan, O'Don-

nell and Rogers commissioners. The bill author-
ized tlie chamber of commerce, the board of trade
and transportation, and the anti-monopoly league
to nominate one of the commissioners to the gov-
ernor; and Mr. O'Donnell was so nominated by
two of the three bodies, and the governor, under
the bill, made the appointment. — By Uie estab-
lishment 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 was now interposed, with
power somewhat simOar to that of the Massachu-
setts commission, between the people and the
powerful railway corporations, clothpd with au-
thority for searching and continuous investigatioB
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
natural aptitude of intelligent men to grow to the
work they have in hand, will, in time, make thi&
commission a valuable aid to proper legislation.
The important interests constantly connected with
the subject committed to their care, will cause
the work of the commission to be carefully
watched, and the strong temptations that are
placed in the way of these commissioners, in con-
sequence of the enormous wealth and power of
one of the parties constantly before it, will in-
evitably cause the commission to act with pru-
dence, for the purpose of shielding themselves
against suspicion. — During the same years, other
states had parallel experiences with struggles for
the appointment of railroad commissioners. There
are now in existence fourteen railroad commis-
sions in the various states of the Union, 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 opin-
ion 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. — During the last
five years, efforts were made in the United States
congress to create a board of railroad commis-
sioners for the United States, to exercise over
all the railway corporations doing an interstate
business the same kind of supervision and con-
trol as is exercised by the various state com-
missions over corporations chartered by the sev-
eral states. Almost pari passu with this at-
tempted reform, an annual effort is made in
congress to regulate interstate commerce, with-
out the intervention of a commission, in the pas-
sage of a freight bill,' in the nature of a pro rata
bill, containing anti-discrimination clauses. Thus
far, the advocates of the two measures have op-
posed each other, and no good results will prob-
ably 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, 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 substantially 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 con-
trol over them. The necessity of the case, as well
as sound logic, fights against their cause; and the
time is not far distant when all the people of the
United States, as represented in the general gov-
ernment, must take in hand the railway corpora-
tions of the United States, concentrated as they
now are in power by becoming more and more un-
der the control of a few leading minds, who can be
gathered together in a single room of a private
gentleman's 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 repre-
sentative body which has been 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
prime necessity. — This brings us to a considera-
tion of some of the general questions, which are
as yet unsolved problems, with reference to the
government of railways, either by the state or by
private management. — The general result of in-
vestigation upon the question of railways within
the past fifteen years, in the United States, and
the development that has taken place, both in rail-
way construction and in many of the evils inci-
dent 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, railways can
never be multiplied to such an extent as to make
them compete in the 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 competitive points. It is
Mfflcult to tell whetherthe war is not more injuri-
ous than the peace, so far as public interests are
concerned. When there is competition between
nval hatters, customers are treated alike at one or

the other shop in the purchase of the commodity
they want, and even if they were not so treated,
no great harm would be done. A railway war
is generally carried on secretly for a considera-
ble period of time before open hostilities begin.
Railways, in vying with each other, seek to obtain

Online LibraryJohn J. (John Joseph) LalorCyclopædia of political science, political economy, and of the political history of the United States → online text (page 134 of 290)