Part 28

But all these things, while they increased the efficiency of the service, also increased the power of the railroad authorities and rendered the shipper more helpless. The very cheapness of rates only made a recourse to other means of transportation more difficult. If _A_ was charged 30 cents while his competitor _B_ was paying only 20 cents for the same service, he was worse off than when they were both paying a dollar; and the fact that no other means of conveyance could be found to do the work for less than a dollar simply put _A_ all the more completely at the mercy of the railroad freight-agent. In other words, the fact that rates were so low made any inequality in rates all the more dangerous. The lower the rate and the wider the monopoly, the less was the chance of relief.

Such inequalities existed on a large scale: and they were all the more difficult to deal with because there was a certain reason for some of them arising from the nature of railroad business. The expenses of a railroad are of two kinds. Some, like train and station service, locomotive fuel, or repairs of rolling-stock, are pretty directly chargeable to the different parts of the traffic. It costs a certain amount in wages and in materials to run a particular train; if that train is taken off, that part of the expense is saved. But there is another class of items, known as fixed charges, that do not vary with the amount of business done. Interest on bonds must be paid, whether the volume of traffic be large or small. The services of track-watchmen must be paid for, whether there be a hundred trains daily or only a dozen. In short, most of the expenses for interest and maintenance of way are chargeable to the business as a whole, but not to particular pieces of work done. The practical inference from this is obvious. In order that the railroad as a whole may be profitable, the fixed charges must be paid somehow. The railroad manager will try to get them as he can from different parts of his traffic. But if, for any reason, a particular piece of business cannot or will not pay its share of the fixed charges, it is better to secure it at any price above the bare expense of loading and hauling, without regard to the fixed charges. For if the business is lost, these charges will run on just the same, without any added means of meeting them.

The consequence is that there is no natural standard of rates; or, rather, that there are two standards, so far apart that the difference between the two is quite sufficient to build up one establishment or one locality and ruin another, in case of an arbitrary exercise of power on the part of the freight-agent. In the use of such a power it was inevitable that there should be a great many mistakes, and some things which were worse than mistakes. Colbert once cynically defined taxation as "the art of so plucking the goose as to secure the largest amount of feathers with the least amount of squealing." Some of our freight-agents have taken Colbert's tax theories as a standard, and have applied them only too literally. It is this short-sighted policy which has made the system of charging "what the traffic will bear" a synonyme for extortion. Interpreted rightly, this phrase represents a sound principle of railroad policy--putting the burden of the fixed charges on the shipments that can afford to pay them. But practically--in the popular mind at least--it has come to mean almost exactly the opposite.

The points which got the benefit of the lowest rates were the large trade centres, which had the benefit of competing lines of railroad, and often of water competition also. The threat to ship goods by a rival route was the surest way of making a freight-agent give low rates. The result was that the growth of such places was specially stimulated. In addition to their natural advantages they had an artificial one due to the policy of competing lines of railroad. It may well be the case, as is argued by railroad men, that sound railroad economy demands that goods in large masses should be carried much more cheaply than those which are furnished in smaller quantities. But it is certain the practice went far beyond the limits of any such justification. There was a time when cattle were carried from Chicago to New York at a dollar a car-load; and many other instances, scarcely less marked, could be cited from the history of trunk-line competition. The fact was, that in an active railroad war freight-agents would generally accede to a demand for reduced rates at a competing point, whether well founded or not, and would almost always turn a deaf ear to similar demands from local shippers, however strongly supported by considerations of far-sighted business policy.

But this was not the worst. Inequalities between different places might after some hardship correct themselves; differences of treatment between individuals could not be thus adjusted. And the system of making rates by special bargain almost always led to differences between individuals, where favors were too often given to those who needed or deserved them least. The fluctuation of rates was first taken advantage of by the unscrupulous speculator. Often, if he controlled large sources of shipment, he might receive the benefit of a secret agreement by which he could obtain lower rates than his rivals under all circumstances. A more effective means for destroying straightforwardness in business dealings than the old system of special rates was never devised. Sometimes, where one competitor was overwhelmingly strong, the pretence of secrecy was thrown aside, and the railroad companies so far forgot their public duties as almost openly to assist one concern in crushing its rivals. The state of things in this respect twelve or fifteen years ago was so bad that it is painful to dwell upon; but the reformation to-day is not so complete that we can wash our hands of past sins.

Less was said or felt of similar evils in passenger traffic, because the passenger business of the country generally is of much less importance than its freight business, either to the railroad investors or to the producers themselves. But there was the same fluctuation in passenger rates; and there was an outrageous form of discrimination in the development of the free-pass system; a practice which would have fully deserved the name of systematic bribery, had it not become so universal that most men hardly recognized any personal obligation connected with the acceptance of a pass. Officials and other citizens of influence had come to regard it as a right; it was not so much bribery on the part of the companies as blackmail levied against them.

The remedies proposed for all these evils have been various. From the very beginning until now there have been some who held that such abuses could be avoided only by State railroad ownership. Such experiments in the United States have not gone far enough to furnish conclusive evidence either way; but the experience of other countries indicates that State railroads, as such, do not avoid these evils. Where they have been worked in competition with other lines, they have been as deeply involved in these abuses as their private competitors--perhaps more so. Where the government has obtained control of all the railroads of the country, and made such arrangements with the water-routes as to render competition impossible, the abuses have vanished, because there was no longer any conceivable motive to continue them. But this was the result of the monopoly, not of the State ownership; and the advantage was purchased by a sacrifice of all the stimulus of competition toward the development of new facilities.

Many people assume that, because the government represents the nation as a whole, therefore government officials will not be under the same temptations to act unjustly which are felt by the representatives of a private corporation. This is a mistake. It is not as representatives of the investor that railroad agents do much injustice; this motive has practically nothing to do with it. Most of the abuses complained of are positively injurious to the investor in the long run. When officials really represent the interests of the property with wise foresight, they, as a rule, give the public no ground to complain. The question reduces itself to this: Will the State choose better representatives and agents than a private corporation? Will it secure a higher grade of officials, more competent, more honest, and more enterprising? The difference between state and private railroads is not so much on matters of policy as on methods of administration. The success of government administration varies with different countries. In Prussia, where it is seen at its best, the results are in some respects remarkably good; yet even here the roads are not managed on anything like the American standard of efficiency, either in amount of train service, in speed, or in rapidity of development. And what is barely successful in Prussia, with its trained civil service on the one hand and its less intense industrial demands on the other, can hardly be considered possible or desirable in America. No one who has watched the workings of a government contract can desire to have the whole trade of the country put to the expense of supporting such methods in its transportation business.

A more easy method of trying to regulate railroad charges has been by forced reductions in rates. This was tried on the largest scale in the Granger movement fifteen years ago. A fall in the price of wheat had rendered it difficult for the farmers to make money. The Patrons of Husbandry, in investigating the causes, saw that the larger trade centres, where there was competition, were getting lower rates than the local producer. They reasoned that if all the farmers could get such low rates, they could make money; and that, if the roads could afford to make these low rates for any points, they could afford to do it for all. The railroad agents, instead of foreseeing the storm and trying to prevent it, assumed a defiant attitude. The result was that legislatures of the States in the upper Mississippi Valley passed laws of more or less rigidity, scaling down all rates to the general level of competitive ones. After a period of some doubt, the right of the States to do this was admitted by the courts. But before the legal possibility had been decided, the practical impossibility of such a course had been shown. If all rates were reduced to the level of competitive ones, it left nothing to pay fixed charges. On such terms, foreign capital would not come into the State; nor could it be enticed by such a clumsy effort as that of one of the States, which provided "that no road _hereafter constructed_ shall be subject to the provisions of this act." The goose which laid the golden eggs was not such a goose as to be deceived by this. The untimely death of several of her species meant more than any promises of immunity to those who should follow in her footsteps. In those States which had passed the most severe laws capital would not invest; railroads could not pay interest, their development stopped, and the growth of the community was seriously checked thereby. The most obnoxious laws were either repealed or allowed to remain in abeyance. Where the movement was strongest in 1873 it had practically spent its force in 1876. There have been many similar attempts in all parts of the country since that time; just now they are peculiarly active; but nothing which approaches in recklessness some of the legislation of 1873 and 1874. The lesson was at least partly learned.

We had hardly passed the crisis of the effort to level down, when some of the more intelligent railroad men made an effort to level up. Recognizing that discriminations and fluctuating rates were an evil, they sought to avoid it by common action with regard to the business at competing points. A mere agreement as to rates to be charged was not enough to secure this end. Such an agreement was sure to be violated. Even if the leading authorities meant to observe it, their agents could always evade its requirements to some extent. Such evasion was favored by loose arrangements between connecting roads, and by the somewhat irresponsible system of fast freight lines. Wherever it existed, it gave rise to mutual suspicion. _A_ believed that his road did it because he could not help it, but that _B_ and _C_ were allowing their roads to do it maliciously; while _B_ and _C_ had the same consciousness of individual rectitude and the same unkind suspicions with regard to _A_. It was at best a rather hollow truce, which did not really accomplish its purpose, and which might change to open war on very slight provocation.

To avoid this difficulty a pool, or division of traffic, was arranged. It is a fact that, whatever wars of rates there may be, the percentage of traffic carried by the different lines varies but little. If an arbitrator can examine the books and decide what these percentages have been in the past, he can make an award for the future, under which the competitive traffic of the different roads may be fairly divided. The arrangements for doing this are various. Sometimes the roads carry such traffic as may happen to be offered, and settle the differences with one another by money balances; sometimes they actually divert traffic from one line to another. But the advantage of either of these arrangements over a mere agreement to maintain rates is that they cannot be violated without direct action on the part of the leading authorities of the roads concerned--either in open withdrawal, or in actual bad faith. The ordinary irregularities of agents do not, under a pooling system, give rise to much suspicion, because they do not benefit the road in whose behalf they are undertaken. Its percentage being fixed there is no motive for rate-cutting. So great is this advantage that pooling is accepted in almost all other countries as a natural means of maintaining equality of rates; the state railroads of Central Europe entering into such contracts with competing private lines and even with water-routes. In America itself, pools have had a longer and wider history than is generally supposed. In New England they arose and continued to exist on a moderate scale without attracting much attention. In the Mississippi Valley, the Chicago-Omaha pool was arranged as early as 1870, and formed the model for a whole system of such arrangements extending as far as the Pacific Coast. But, as involving wider questions of public policy, the activity of the Southern and the Trunk Line Associations has attracted chief attention.

The man whose name is most prominently identified with both these systems is Albert Fink. A German by birth and education, his long experience as a practical railroad engineer did not deprive him of a taste for studying traffic problems on their theoretical side. As Vice-President of the Louisville & Nashville, he had given special attention to the economic conditions affecting the Southern roads; and when, in the years 1873-75, a traffic association was formed by a number of these roads to secure harmony of action on matters of common interest, he became the recognized leader. His success in arrangements for through traffic was so conspicuous that when, in 1877, the trunk lines were exhausted with an unusually destructive war of rates, they looked to him as the only man who could deliver them from their trouble. In some lines, division of traffic had already been resorted to; but it was in the hands of outside parties, like the Standard Oil Company or the cattle eveners, and was made a means of oppression against shippers not in the combination itself.

The conditions were not favorable; the result of Fink's efforts to bring order out of chaos was slow and by no means uninterrupted. Yet on the whole, as was admitted even by opponents of the pooling system, it contributed to steadiness and equality of rates. The arrangement of these agreements was hampered by their want of legal status. While the law did not at that time actually prohibit them, it refused to enforce them. Existing thus on sufferance, they depended on the good will of the contracting parties. None but a man of Fink's unimpeached integrity and high intellectual power could have kept matters running at all; and even he could not prevent the adoption of a policy of making hay while the sun shines, more or less regardless of the future. The results of the trunk-line pool were unsatisfactory--most of all to those who believed in pools as a system; but it is fair to attribute a large part of this failure to the absence of legal recognition, which in a manner compelled the agreements to be arranged to meet the demands of the day rather than of the future.

Meantime an equally important contribution to the solution of the railroad question was being worked out in another quarter. In the year 1869 the Massachusetts Railroad Commission was established. Its powers were so slight that it was not regarded as likely to be an influential public agency. Fortunately it numbered among its members Charles Francis Adams, Jr.; a man whose efficiency more than made up for any want of nominal powers. In his hands the mere power to report became the most effective of all weapons. Representing at once enlightened public judgment and far-sighted railroad policy, he did much to bring the two into harmony and protect the legitimate interests on both sides from short-sighted misuse for the benefit of either party. The detail of his work is matter of past history; perhaps its most prominent result was to introduce to State legislation the idea of a railroad commission as an administrative body. Those States which had no stringent laws appointed commissions to take their place; those which had overstringent ones appointed commissions to use discretion in applying them. In either case, the existence of a body of men representing the State, but possessing the technical knowledge to see what the exigencies of railroad business demanded, was a protection to all parties concerned.

But matters were rapidly passing beyond the sphere of State legislation. Each new consolidation of systems, each additional development of through traffic, made it more impossible to control railroad policy by the action of individual States. It could only be done by a development of the law in the United States courts or by Congressional legislation. The former result was necessarily slow; each year showed an increased demand for special action on the part of Congress. But such action was hindered by divergence of opinion in that body itself. One set of men wished a moderate law, prohibiting the most serious abuses of railroad power, and enforced under the discretionary care of a commission. These men were for the most part not unwilling to see pools legalized if their members could thereby be held to a fuller measure of responsibility. On the other hand, the extremists wished to prescribe a system of equal mileage rates; they would hear of no such thing as a commission, and hated pools as an invention of the adversary. Between the two lay a large body of members who had no convictions on the matter, but were desirous to please everybody and offend nobody--a hard task in this particular case. It was nearly nine years from the time Mr. Reagan introduced his first bill when a compromise was finally effected--largely by the influence of Senator Cullom. As compromises go, it was a tolerably fair one. The extremists sacrificed their opposition to a commission, but secured the prohibition of pools; the disputed points with regard to rates were left in such a shape that no man knew what the law meant, and each was, for the time being, able to interpret it to suit the wishes of his Congressional district.

The immediate effects of the law were extremely good. There were certain sections of it, like those which secured publicity of rates and equal treatment for different persons in the same circumstances, whose wisdom was universally admitted. Indeed it was rather a disgrace, both to the railroad agents and to the courts, that we had to wait for an act of Congress to secure these ends; and most of the railroads made up for past remissness in this respect by quite a spasm of virtue. In some instances it was even thought that they "stood up so straight as to lean over backward." But this was not the only part of the law which proved efficient. The very vagueness of the clause concerning the relative rates for through and local traffic, which under other circumstances might have proved fatal, put a most salutary power into the hands of the Interstate Commerce Commission, and one which they were not slow to use.

The President was fortunate in his selection of commissioners; above all in the chairman, Judge T. M. Cooley, of Michigan, a man whose character, knowledge of public law, and technical familiarity with railroad business made him singularly well fitted for the place. The work of the Interstate Commission, like that of its Massachusetts prototype, shows how much more important is personal power than mere technical authority. It was supposed at first that the commission would be a purely administrative body, with discretion to suspend the law. Instead of this, they have enforced and interpreted it; and in the process of interpretation have virtually created a body of additional law, which is read and quoted as authority. With but little ground for expecting it from the letter of the act, they have become a judicial body of the highest importance. Their existence seems to furnish a possibility for an elastic development of transportation law, neither so weak as to be ineffective nor so strong as to break by its own rigidity.

But the final test of their success is yet to come. They have laid down a few principles as to the cases when competition justifies through rates lower than those at intermediate points. But the application of these principles is as yet far from settled; and it is rendered doubly hard by the clause against pools, which does much to hamper the roads in any attempt to secure common action on the matter of through rates. Each ill-judged piece of State legislation, and each reckless attempt to attack railroad profits, increases the difficulty. There was a time when the powers of railroad managers were developed without corresponding responsibility. In many parts of the country we are now going to the other extreme--increasing the responsibility of railroad authorities toward shipper and employees, State law and national commission, and at the same time striving to restrict their powers to the utmost. Such a policy cannot be continued indefinitely without a disastrous effect upon railroad service, and, indirectly, upon the business of the country as a whole.

FOOTNOTES: