The Railroad Builders Part 7

The fact was that Edward H. Harriman, who for some years past had been a powerful influence in the affairs of the Illinois Central Railroad but who was unknown to the average Wall Street promoter and totally unheard of throughout the country, had made up his mind to reorganize the Union Pacific Railroad. He therefore began to work quietly with various interests in an attempt to tie up the property. But soon he, like Schiff, encountered serious opposition. He also immediately jumped to the conclusion that Morgan was secretly at work, and he called on Morgan for the facts. Morgan replied, as he had replied to Schiff, that he was not interested, but that he wished Harriman success.

As Schiff continued to meet with difficulty, he soon called on Morgan again. Again Morgan replied that he was not interested. "But," he said, "I think if you will go and see a chap named E. H. Harriman you may find out something."

Who was Harriman? Schiff had hardly heard of him and had never met him.

How could a small man like Harriman, with no money, no powerful friends, no big financial backing, reorganize a great system like the Union Pacific Railroad? The idea seemed ridiculous. Nevertheless, as the opposition continued, Schiff soon got in touch with Harriman. In the course of a conference, he warned this daring interloper to keep his hands off the Union Pacific. But Harriman was not moved by threats. On the contrary, he insisted that Schiff should leave the Union Pacific alone; that he himself had already worked out his plans to reorganize it. Schiff laughed at this idea, termed it chimerical, and a.s.serted that Kuhn, Loeb and Company were easily able to obtain the needed one hundred millions or more through their foreign connections on a basis of from four to five per cent, and that in America no such sum of new capital could at that time be raised through banking activities at better than six or seven per cent.

Harriman then sprang his surprise on Schiff. For some years he had been financially interested in the affairs of the Illinois Central. This property had at that time higher credit than any other American railroad; it had raised large sums of capital in Europe on as low a basis as three per cent, and on most of its bonds paid only three and one-half per cent interest. For nearly fifty years the property had been paying dividends with hardly an interruption, and altogether it had an enviable reputation as one of the soundest investments. Harriman's influence in the affairs of the company had been increasing quietly for years; the management had been left almost completely in his hands; and the directors were in effect largely his puppets, and a majority would do his bidding in almost anything he might propose.

Harriman now announced to Schiff that he intended to have the Union Pacific reorganized as an appendage of the Illinois Central. The necessary one hundred millions would be raised by a first mortgage on the entire Union Pacific lines at three per cent, and the mortgage would be guaranteed by the Illinois Central, while the latter company would receive a majority of the new Union Pacific stock in consideration for giving its guarantee.

Here was a poser for Schiff, who saw at once that if Harriman could use the Illinois Central credit in this way, he certainly could carry out his plan. Schiff soon found that Harriman would have no difficulty in using Illinois Central credit. The upshot of the matter was that the two men got together and jointly reorganized the Union Pacific. Harriman was made chairman of the Board of Directors, and Kuhn, Loeb and Company became the permanent bankers for the new railroad system.

Thus with one bound Harriman had leaped to the forefront in American railroad finance and by a bold act which was characteristic of the man.

For Edward H. Harriman was not only a hardheaded, practical business builder who like Morgan thought in big figures, but he was also a bold plunger, which Morgan was not. Possessing a vivid imagination, he not only saw far into the future but he also planned far into that same future. Morgan was also a man of vision, but his vision did not carry him far beyond the present. The things Morgan saw best were those immediately before him, while the things that Harriman saw best were at a distance. Morgan's big plans of procedure were based on what he saw in a business way in the near future; he reorganized his railroads with the idea of making them pay their way as soon as possible and of showing a good return on the capital invested. He thought little of what might be the outcome a decade or two hence or of what combinations might later be worked on the chessboard as a result of his immediate moves. Morgan's mind was not philosophical; it was intensely practical.

While Morgan declined the proffered control of the Union Pacific on the theory that it was only a "streak of rust" running through a spa.r.s.ely settled country and across an arid desert, Harriman dreamed of the great undeveloped West filling up with people during the following generation, of the empty plains being everywhere put under cultivation, and of the arid desert responding to the effects of irrigation on a large and comprehensive scale. He foresaw the wonderful future of the Pacific States--the opening up of natural resources in the mountains, the steady stream of men and women who would ultimately emigrate to this vast section from the East and from foreign lands and who would build up towns and great cities. At the same time, with that practical mind of his, Harriman calculated that the Union Pacific Railroad--situated in the heart of this huge area, having the most direct and shortest line to the Pacific, and with all traffic from the East converging over half a dozen feeder lines to Omaha and Kansas City--would haul enormous amounts of tonnage just as soon as the Western country revived from the depression under which it had been struggling for half a dozen years.

When Harriman took hold of the Union Pacific he had already determined to absorb the Oregon lines, with their tributaries running up into the Puget Sound country and to the b.u.t.te mining district; to get hold of the Southern Pacific properties at the earliest possible moment; and to link the Illinois Central in some way to the Union Pacific so that the latter would have its own independent outlets to Chicago and St. Louis. All these plans he ultimately accomplished, as well as many others, some of which his fa.r.s.eeing imagination may have conceived then.

While Harriman was able very promptly to carry through his first scheme and recapture the Oregon lines, which had been separately reorganized as a result of the receivers.h.i.+p, he found it a far more difficult matter to secure a dominating interest in the great system of railroads controlled by Collis P. Huntington. Huntington was a hard man to deal with. Himself one of the practical railroad magnates of his time, he also had the gift of vision and undoubtedly foresaw that the ultimate result must be a consolidation of the properties; but he fully expected that his company would absorb the Union Pacific. Had it not been that during the panic period the Southern Pacific had heavy loads of its own to carry and that its credit was none too high, Huntington might then have attempted to gain control of the Union Pacific.

Events finally worked to the benefit of Harriman. When Collis P.

Huntington died in 1900, it was in most people's minds only a question of time as to when the powerful Harriman interests would take over the Southern Pacific properties. Consequently there was no surprise when in 1901 announcement was made that the Union Pacific had purchased the holdings of the Huntington estate in the Southern Pacific Company and was therefore in virtual control.

By a master stroke the railroad situation in the West had been radically changed. The Huntington system comprehended many properties of large and growing value, which were now feeling the full benefit of the agricultural prosperity at that time spreading throughout the great Southwest. Aside from this prize, the Union Pacific acquired the main line to the Pacific coast which it had always coveted and thus added to its system over nine thousand miles of railroad and over four thousand miles of water lines, besides obtaining a grip on the railroad empire of this entire portion of the continent not to be readily loosened by compet.i.tors.

At the same time that Harriman was strengthening his position on the west and south, the Great Northern and Northern Pacific properties, both now operated under the definite control of James J. Hill, were following a policy of expansion fully as gigantic as that of the Union Pacific.

The Great Northern lines operating from Duluth to the Pacific coast had become powerful elements in the Western railroad situation, and Hill had devised many plans for diverting to the north the through traffic coming from the central section of the continent. He had established on the Great Lakes a line of steams.h.i.+ps running from Duluth to Buffalo, and was also operating on the Pacific Ocean steams.h.i.+p lines which gave him a connection with j.a.pan, China, and other oriental countries.

After the reorganization of the Northern Pacific Railroad, which fell under the domination of Morgan, the affiliations of the Hill and Morgan interests became very close, and in a short time Hill had as secure a grip on the Northern Pacific as he had always had on the Great Northern.

This powerful combination looked like a menace to the Harriman-Kuhn-Loeb interests which controlled the territory to the south and radiated throughout the State of Oregon. When, therefore, the Northern Pacific began a little later to build into territory in Oregon and Was.h.i.+ngton which the Union Pacific regarded as a part of its own preserves, much bad feeling was engendered between the two interests. Matters were brought to a climax in the spring of 1901 when the Harriman people suddenly made the discovery that the Hill-Morgan combination had been quietly buying control of the valuable Chicago, Burlington and Quincy Railroad, which operated a vast system west and northwest of Chicago, penetrated as far into the Union Pacific main-line territory as Denver, and connected at the north with the eastern terminals of both the Great Northern and Northern Pacific systems. This move meant but one thing to Harriman: the Hill-Morgan interests were trying to surround the Union Pacific and make it powerless, just as the Southern Pacific had attempted to do many years before.

Harriman now played one of his bold strokes. He immediately began to purchase Northern Pacific stock in the open market in order to secure control of that property. It was well known that while the Hill-Morgan alliance dominated the Northern Pacific, it did not actually own a majority of the stock, and to secure this majority was Harriman's purpose. This move would effectually check the invasion of the Union Pacific territory by giving the Harriman interests a voice in the control of the Chicago, Burlington and Quincy.

The price of Northern Pacific common stock soared day after day until on May 9, 1901, it sold at $1000 a share, and a momentary panic ensued. At the time Morgan was on the ocean and could not be reached. His partners were apparently not equal to the emergency. But Harriman was. When the panic reached its height, both interests had purchased far more than a majority of Northern Pacific stock--in contracts for future delivery.

It was seen that to insist on the delivery of shares which did not exist would not only bankrupt every "short" speculator, large and small, but would undoubtedly bring all Wall Street tumbling down like a house of cards. So, in the midst of the excitement, the two interests reached a compromise.

The outcome was the formation of the Northern Securities Company with a capital of $400,000,000, nearly all of which was issued to acquire the capital stocks of the Northern Pacific and Great Northern railroads.

All the properties, including the Burlington, thus came under the joint control of the Harriman and Hill groups. The division of territory on both the east and the west was worked out amicably: the Northern Pacific abandoned some of its plans for extensions in Oregon, and the Burlington system remained as it was, with the understanding that no extensions should be built to the Pacific coast. Later the Burlington acquired control of a cross-country system, the Colorado Southern, extending south to the Gulf, but to this day has made no attempt to build beyond the lines it owned to Wyoming in 1901.

As is well known, the Northern Securities Company was subsequently declared to exist in violation of the Sherman Anti-Trust Act, and on a decision of the United States Supreme Court in 1904 it was practically dissolved and all its securities were returned to the original holders.

This dissolution left the Hill-Morgan interests in undisputed control of the Burlington properties, but harmonious relations had in the meantime been established among the contestants, a.s.suring an equitable division of territory and traffic. The final outcome was that the Union Pacific Railroad Company, which had purchased with its large surplus and by the use of its high credit many million dollars' worth of the capital stocks of the Great Northern and Northern Pacific railroads, received these stocks back after several years of great prosperity and after the appreciation in the market values of the stocks had exceeded $60,000,000. There was no further necessity for holding them and most of the stocks were sold at the high prices of 1905 and 1906, with actual net profit for the Union Pacific Railroad in excess of $50,000,000. No such gigantic financial transaction as this had ever before been carried through by an American railroad corporation.

With an overflowing treasury in the Union Pacific, Harriman immediately turned his face toward the East. It had for years been one of his dreams to control a continuous line of railroad from the Atlantic to the Pacific. As early as 1902 he had all but completed negotiations for the acquisition of the New York Central lines in the interest of the Union Pacific; but this plan had met with opposition from the Vanderbilts and Morgan and had been dropped. Harriman now took advantage of an opportunity which presented itself to acquire for the Union Pacific what was practically a dominating interest in the Baltimore and Ohio, a large block of whose stock was disposed of by the Pennsylvania Railroad.

Harriman had already largely added to the Union Pacific's holdings in the Illinois Central. Jointly with the Lake Sh.o.r.e of the Vanderbilt system, the Baltimore and Ohio had, as already described, acquired a dominating interest in the Reading Company, including all the latter company's interests and affiliations as well as its entry into the New York district through control of the Central Railroad of New Jersey.

Harriman, therefore, by a single stroke, now found himself in practical possession of a coast-to-coast system of railroads extending all the way from New York to San Francisco, Portland, and Los Angeles, and pa.s.sing through all the important cities of the country. The Illinois Central system, operating nearly five thousand miles of road southward from Chicago to New Orleans, pa.s.sing through St. Louis, with an arm reaching out to Sioux City on the west and a network of branches covering the Middle States, had thus become the great link welding together the eastern and western Harriman systems.

Later the Union Pacific acquired large interests in other properties and purchased substantial amounts of stock in the Atchison, Topeka and Santa Fe, the New York Central, the St. Paul, and the Chicago and North Western railroads. It also acquired a dominating interest in the Chicago and Alton property, operating from Chicago to St. Louis, with Western branches. In the panic period of 1907, Harriman personally purchased from Charles W. Morse, who had acquired the property from Morgan a short time before, the entire capital stock of the Central of Georgia Railway, which he later turned over to the Illinois Central. The Central of Georgia lines connect at several points with the Illinois Central and have given the system various outlets on the South Atlantic seaboard.

Harriman died in September of 1909, and with his death the wizard touch was clearly gone. What would have been the later history of the Union Pacific had he lived can be only conjectured. The new management, with Judge Robert S. Lovett at its head, continued the broad and efficient operation which had characterized Mr. Harriman's regime, but it soon abandoned the policy of further growth and expansion. This alteration in policy, however, was perhaps more the result of changing conditions than of relinquishment of Harriman's aims. Many new laws for the regulation of the railways had been pa.s.sed, and in 1906 the powers of the Interstate Commerce Commission were greatly augmented. A period of reform had now begun, and after 1909 a wave of "progressivism"

overspread the country. New interpretations were given to the Sherman Act, and suits were soon under way against all the railroads and industrial combinations which appeared to be infringing that statute.

The great Standard Oil and Tobacco trusts were dissolved in this period, and a suit which was brought to divorce the Union Pacific and the Southern Pacific Company was finally decided against the Union Pacific, with the result that the two big properties were separated. The Union Pacific turned a large amount of its Southern Pacific stock holdings over to the Pennsylvania Railroad, in exchange for which it received from the Pennsylvania the remainder of the Baltimore and Ohio stock which the Pennsylvania interests had retained after the sale to the Union Pacific in 1906. Immediately after this, the Union Pacific management, seeing no particular advantage in retaining an interest in the Baltimore and Ohio, gave the shares to its own stockholders in a special dividend.

Thus, since Harriman's death, the Union Pacific Railroad has once more returned to very much its original condition prior to its acquisition of the Southern Pacific. It still controls the Illinois Central and the Chicago and Alton and has investment interests in a large number of other railroads. It is still the premier system of the West and promises to remain so indefinitely; but the bold Harriman touch is gone and will never return.

CHAPTER XII. THE AMERICAN RAILROAD PROBLEM

During the last fifty years the railroad has perhaps been most familiar to the American people as a "problem." As a problem it has figured constantly in politics and has held an important position in many political campaigns. The details that comprise this problem have been indicated to some extent in the preceding pages--the speculative character of much railroad building, the rascality of some railroad promoters, the corrupting influence which the railroad has too frequently exerted in legislatures and even in the courts. The attempts to subject this new "monster" to government regulation and control have furnished many of the liveliest legislative and judicial battles in American history. Farmers, merchants, manufacturers, and the traveling public have all had their troubles with the transportation lines, and the difficulties to which these struggles have given rise have produced that problem which is even now apparently far from solution.

Railroads had been operating for many years in this country before it dawned upon the farmers that this great improvement, which many had hailed as his greatest friend, might be his greatest enemy. It had been operating for several decades in the manufacturing sections before the enterprising industrialist discovered that the railroad might not only build up his business but also destroy it. From these discoveries arose all those discordant cries of "extortion," "rebate," "compet.i.tion,"

"long haul and short haul," "regulation," and "government owners.h.i.+p,"

which have given railroad literature a vocabulary all its own and have written new chapters in the science of economics. The storm center of all this agitation concerned primarily one thing--the amount which the railroad might fairly charge for transporting pa.s.sengers and freight.

The battle of the people with the railroads for fifty years has been the "battle of the rate." This has taken mainly two forms, the agrarian agitation of the West against transportation charges, and the fight of the manufacturing centers, mainly in the East, against discriminations.

Perhaps its most characteristic episodes have been the fight of the "Grangers" and their successors against the trunk lines and that of the general public against the Standard Oil Company.

Even in the fifties and the sixties, the American public had its railroad problem, but it was quite different in character from the one with which we have since grown so familiar. The problem in this earlier period was merely that of getting more railroads. The farmer pioneers in those days were not demanding lower rates, better service, and no discrimination and antipooling clauses; they asked for the building of more lines upon practically any terms. This insistence on railroad construction in the sixties explains to a great extent the difficulties subsequently encountered. In a large number of cases railroad building became a purely speculative enterprise; the capitalists who engaged in this business had no interest in transportation but were seeking merely to make their fortunes out of constructing the lines. Not infrequently the farmers themselves furnished a considerable amount of money, expecting to obtain not only personal dividends on the investment but larger general dividends in the shape of cheap transportation rates and the development of the country. Even when the builders were more honest, their mistaken enthusiasm had consequences which were similarly disastrous. The simple fact is that a considerable part of the Mississippi Valley, five or ten years after the Civil War, found itself in the possession of railroads far in excess of the public need. In the long run this state of affairs was probably not a great economic evil, for it stimulated development on a tremendous scale; but its temporary effect was disastrous not only to the railroads themselves but to the struggling population. The farmer had mortgaged his farm to buy stock in the road; and his town or county or State had subsidized the line by borrowing money which it frequently could not repay. When this property became bankrupt, not only wiping out these investments but leaving the agricultural population at the mercy of what it regarded as exorbitant rates and all kinds of unfair discriminations with high interest charges on its mortgages and high local taxes, the blind fury that resulted among the farmers was not unnatural.

Many of the railroad evils were inherent in the situation; they were explained by the fact that both managers and public were dealing with a new agency whose laws they did not completely understand. But the mere play of personal forces in themselves aggravated the antagonism. The fact that most of the railroad magnates lived in the East added that element of absentee landlordism which is essential to most agrarian problems. Many of the Western capitalists were real leaders; yet it is only necessary to remember that the most active man in Western railroads in the seventies was Jay Gould, to understand the suspicion in which the railroad promoter of that day was generally held. It is significant that of all the existing railroad abuses, the one which seemed to arouse particular hostility was the free pa.s.s. There were many greater practical evils than this, yet the fact that most editors and public officials and politicians and legislators and even many judges rode "deadhead" was a constant reminder of the influence which this "alien"

power exercised over the government and the public opinion of the communities of which it was theoretically the servant. Many of these roads had a greater income than the States they served; their payrolls were much larger; their head officials received higher salaries than governors and presidents. The extent to which these roads controlled legislatures and, as it seemed at times, even the courts themselves, alarmed the people. The stock-jobbing that had formed so large a part of their history added nothing to their popularity. Yet, when all these charges against the railroads are admitted, the fundamental difficulty was one which, at that stage of public enlightenment, was beyond the power of individuals to control. Nearly all the deep-seated evils arose from the fact that the railroads were attempting to do something which, in the nature of the case, they were entirely unfitted to do--that is, compete against one another. When the great trunk lines were constructed, the idea that compet.i.tion was the life of trade held sway in America, and the popular impression prevailed that this rule would apply to railroads as well as to other forms of business. To the few fa.r.s.eeing prophets who predicted the difficulties which subsequently materialized, the answer was always made that compet.i.tion would protect the public from extortion and other abuses. But compet.i.tion between railroads is well-nigh impossible. Only in case different companies operated their cars upon the same roadbed--something which, in the earliest days, they actually did on certain lines--could they compete, and any such system as a general practice is clearly impracticable. One railroad which paralleled another in all its details might compete with it, but there are almost no routes that can furnish business enough for two such lines, and the carrying out of such an idea involves a waste of capital on an enormous scale. Probably the country received its most striking ill.u.s.tration of this when the West Sh.o.r.e Railroad in New York State was built almost completely duplicating the New York Central, with the result that both roads were nearly bankrupted.

While no one railroad can completely duplicate another line, two or more may compete at particular points. By 1870 this contingency had produced what was regarded as the greatest abuse of the time--the familiar problem of "long and short haul." Two or more railroads, starting at an identical point, would each pursue a separate course for several hundred miles and then suddenly come together again at another large city. The result was that they competed at terminals, but that each existed as an independent monopoly at intermediate points. The scramble for business would thus cause the roads to cut rates furiously at terminals; but since there was no compet.i.tion at the intervening places the rates at these points were kept up, and sometimes, it was charged, were raised in order to compensate for losses at the terminals. Thus resulted that anomaly which strikes so strangely the investigator of the railroad problem--that rates apparently have no relation to the distance covered, and that the charge for hauling a load for seventy-five miles may be actually higher than that for hauling the same load one hundred or one hundred and fifty miles. The expert, looking back upon nearly a hundred years of railroad history, may now satisfactorily explain this curious circ.u.mstance; but it is not surprising that the farmer of the early seventies, overburdened with debt and burning his own corn for fuel because he could not pay the freight exacted for hauling it to market, saw in the system, only an attempt to plunder. Yet even the s.h.i.+ppers at terminal points had their grievances, for the compet.i.tion at these points became so savage and so ruinous that the roads soon entered into agreements fixing rates or formed "pools." In accordance with this latter arrangement, all business was put into a common pot, as the natural property of the roads const.i.tuting the pool; it was then allotted to different lines according to a percentage agreement, and the profits were divided accordingly. As the purpose of rate agreements and pools was to stop compet.i.tion and to keep up prices, it is hardly surprising that they were not popular in the Communities which they affected. The circ.u.mstance that, after solemnly entering into pools, the allied roads would frequently violate their agreements and cut rates surrept.i.tiously merely added to the general confusion.

The early seventies were not a time of great prosperity in the newly opened West, and the farmers, looking about for the source of their discomforts, not unnaturally fixed upon the railroads. Their period of discontent coincided with what will always be known in American history as "the Granger movement." In its origin this organization apparently had no relation to the dissatisfaction which its leaders afterward so successfully capitalized. Its founder, Oliver Hudson Kelley, at the time when he started the fraternity was not even a farmer but a clerk in the Agricultural Bureau at Was.h.i.+ngton. Afterward, when the Grangers had become an agrarian force to be feared, if not respected, it was a popular jest to refer to the originators of this great farmers'

organization as "one fruit grower and six government clerks." Kelley's first conception seems to have been to organize the farmers of the nation into a kind of Masonic order. The Patrons of Husbandry, which was the official t.i.tle of his society, was a secret organization, with signs, grips, pa.s.swords, oaths, degrees, and all the other impressive paraphernalia of its prototype. Its officers were called Master, Lecturer, and Treasurer and Secretary; its subordinate degrees for men were Laborer, Cultivator, Harvester, and Husbandman; for women--and women took an important part in the movement--were Maid, Shepherdess, Gleaner, and Matron, while there were higher orders for those especially ambitious and influential, such as Pomona (Hope), Demeter (Faith), and Flora (Charity). Certainly these t.i.tles suggest peace and quiet rather than discontent and political agitation; and, indeed, the organization, as evolved in Kelley's brain, aimed at nothing more startling than the social, intellectual, and economic improvement of the agricultural cla.s.ses. Its const.i.tution especially excluded politics and religion as not being appropriate fields of activity. It did propose certain forms of business cooperation, such as the common purchase of supplies, the marketing of products, perhaps the manufacture of agricultural implements; but its main idea was to contribute to the social well-being of the farmers and their families by frequent meetings and entertainments, and to improve farming methods by collecting agricultural statistics and by spreading the earliest applications of science to agriculture. The idea that the "Grange," as the organization was generally known, would ultimately devote the larger part of its energies to fighting the railroads apparently never entered the minds of its founders.

Had it not been for the increasing agricultural discontent against railroads and corporations in general, the Patrons of Husbandry would probably have died a painless death. But in the early seventies this hostility broke out in the form of minority political parties, the princ.i.p.al plank in whose platform was the regulation of the railroads.

Farmers' tickets, anti-monopoly parties, and anti-railroad candidates began to appear in county and even state elections, sometimes achieving such success as to frighten the leaders of the established organizations. The chief aim of the discontented was "protection from the intolerable wrongs now inflicted onus by the railroads." "Railroad steals," "railroad pirates," "Wall Street stock-jobbers," and like phrases supplied the favorite slogans of the spirited rural campaigns.

These parties, though much ridiculed by the metropolitan press, started a political agitation which spread with increasing force in the next forty years and in recent times eventually gained the ascendency in both the old political parties.

The panic of 1873 and the unusually hard times that followed added fuel to the flame. It was about this time that the Patrons of Husbandry gave evidences of a new vitality, chiefly manifested in a rapidly increasing members.h.i.+p. On May 19,1873, there were 3360 Granges in the United States, while nineteen months later, on January 1, 1875, there were 21,697, with a total members.h.i.+p of over seven hundred thousand. In the Eastern States the movement had made little progress; in the South it had become somewhat more popular; in such States as Missouri, Iowa, Kansas, Nebraska, Montana, Idaho, and Oregon, it had developed into almost a dominating influence. It is not difficult to explain this sudden and astonis.h.i.+ng growth: the farmers in the great grain States seized upon this organization as the most available agency for remedying their wrongs and rescuing them from poverty. In their minds the National Grange now became the one means through which they could obtain that which they most desired--cheaper transportation. Not only did its members.h.i.+p show great increase, but money from dues now filled the treasury to overflowing. At the same time the organs of the capitalist press began to attack the Grange violently, while the politicians in the sections where it was strongest sedulously cultivated it. But the leaders of the movement never made the fatal mistake of converting their organization into a political party. It held no political conventions, named no candidates for office, and even officially warned its members against discussing political questions at their meetings. Yet, according to a statement in the "New York Tribune", "within a few weeks the Grange menaced the political equilibrium of the most steadfast States. It had upset the calculations of veteran campaigners, and put the professional office-seekers to more embarra.s.sment than even the Back Pay." The Grangers fixed their eyes, not upon men or upon parties, but upon measures. They developed the habit of questioning candidates for office concerning their att.i.tude on pending legislation and of publis.h.i.+ng their replies. Another favorite device was to hold Granger conventions in state capitals while the legislature was sitting and thus to bring personal pressure in the interest of their favorite bills. This method of suasion is an extremely potent political force and explains the fact that, in certain States where the Granges were most powerful, they had practically everything their own way in railroad legislation.

The measures which they thus forced upon the statute books and which represented the first comprehensive attempt to regulate railroads have always been known as the "Granger Laws." These differed in severity in different States, but in the main their outlines were the same.

Practically all the Granger legislatures prohibited free pa.s.ses to members of the legislatures and to public officials. A law fixing the rate of pa.s.senger fares--the maximum ranging all the way from two and one-half to five cents a mile--was a regular feature of the Granger programme. Attempts were made to end the "long and short haul" abuse by pa.s.sing acts which prohibited any road from charging more for the short distance than for the long one. More drastic still were the laws pa.s.sed by Iowa in 1874 and the famous Potter bill pa.s.sed by Wisconsin in the same year. Both these measures, besides fixing pa.s.senger fares, wrote in the law itself detailed schedules of freight rates. The Iowa act included a provision establis.h.i.+ng a fund of $10,000 which was to be used by private individuals to pay the expenses of suits for damages under the act, and this same act made all railroad officials and employees who were convicted of violations subject to fine and imprisonment.

The Potter act was even more severe. It not only fixed maximum freight rates, but it established cla.s.sifications of its own. The railroads a.s.serted that the framers of this law had simply taken the lowest rates in force everywhere and reduced them twenty-five per cent. But Iowa and Wisconsin and practically all the States that pa.s.sed the Granger laws also established railroad commissions. For the most part these commissions followed the model of that established by Ma.s.sachusetts in 1869, a body which had little mandatory authority to fix rates or determine service, but which depended upon persuasion, arbitration, and, above all, publicity, to accomplish the desired ends. The Ma.s.sachusetts commission, largely owing to the high character and ability of its members.h.i.+p--Charles Francis Adams serving as chairman for many years--had worked admirably. In the most part these new Western commissions were limited in their activities to regulating accounting, obtaining detailed reports, collecting statistics, and enforcing the new railroad laws.

These measures, following one another in rapid succession, produced a national, even an international sensation. The railroad managements stood aghast at what they regarded as demagogic invasions of their rights, and the more conservative elements of the American public looked upon them as a violent attack upon property. Up to this time there had been little general understanding of the nature of railroad property. In the minds of most people a railroad was a business, precisely like any other business, and the modern notion that it was "affected with a public interest" and that the public was therefore necessarily a partner in the railroad business had made practically no headway. "Can't I do what I want with my own?" Commodore Vanderbilt had exclaimed, a.s.serting his exclusive right to control the operations of the New York Central system; and that question fairly well represented the popular att.i.tude.

That the railroad exercised certain rights of sovereignty, such as that of eminent domain, that it actually used in its operations property belonging to the State, and that these facts in themselves gave the State the right to supervise its management, and even, if necessity arose, to control it--all this may have been recognized as an abstruse legal proposition, but it occupied no practical place in the business consciousness of that time. Naturally the first step of the railroads was therefore to contest the const.i.tutionality of the laws, and while these suits were pending they resorted to various expedients to evade these laws or to mitigate their severity. A touch of liveliness and humor was added to the situation by the thousands of legal fare cases that filled the courts, for farmers used to indulge in one of their favorite agricultural sports--getting on trains and tendering the legal two and a half cents a mile fare, a situation that usually led to ejectment for nonpayment and then to a suit for damages. The railroads easily met the laws forbidding lighter charges for long than for short hauls by increasing the rates for the longer distances, and the laws fixing maximum rates within the State by increasing the rates outside the State. When the courts decided the cases against the railroads, as in most cases they did, these corporations set about to secure the repeal of the laws. They started campaigns of education, frequently through magazine or newspaper articles pointing out the injustice of the Granger laws and insisting that they were working great public damage.

It is a fact that a decrease in railroad construction followed the Granger demonstration, and the friends of the railroads insisted that timid capital hesitated to embark in an enterprise that was constantly subject to legislative attack. These campaigns succeeded much better than the more violent opposition to which the railroads had first resorted. The Western States in the majority of cases repealed their most drastic legislation. Nearly all the laws fixing maximum rates disappeared from the books, and even Iowa and Wisconsin subst.i.tuted for these measures supervisory and advisory commissions after the Ma.s.sachusetts model.

While the Granger movement thus failed effectively to curb the railroads, it succeeded in arousing great popular interest in the railroad problem and in placing before the public several of the most important details of that problem. Not the least of its achievements were the decisions which it obtained from the Supreme Court of the United States. The Granger cases are among the most epoch-making in American history, and they fixed for all time the principles of American policy in dealing with the railroad question. They are particularly worthy of study by those who have regarded the Supreme Court as the bulwark of social injustice and as a body which can always be relied upon to protect the rights of property against the interests of the ma.s.ses. In its railroad decisions this change hardly holds; for these Granger cases sustain practically all the legal contentions made by the Granger legislatures. * The cases fixed for all time the point that a State, acting under the police power, may regulate the charges of a railroad even to the extent of fixing maximum rates. They even went so far as to hold that the right to fix rates is not subject to any restraint by the court on the ground of unreasonableness, a principle which the Supreme Court has reversed in more recent times. The courts also held that a State, at least until Congress acted, could regulate interstate commerce, but this decision also has since then been reversed. These subsequent reversals of decisions which were exceedingly popular at the time, however, not only const.i.tuted sound law but promoted the public interest, for they established that body of law which has made possible the present more comprehensive system of Federal regulation of railroads.

* The cases of particular interest were: Munn vs. Illinois, 94 U.S. 114; Peik vs. Chicago and Northwestern Railway Company, 94 U.S.

164; and Chicago, Burlington and Quincy Railway Company vs. Cutts, 94 U.S. 155.

Meanwhile the demand for regulation was gaining strength in the Eastern States, but for somewhat different reasons. The farmers of New England, New York, and the Eastern region in general had not particularly sympathized with the Granger legislation; they already had great difficulty in competing with the large Western farms, and a reduction in rates to the seaboard would have made their position even less endurable. This att.i.tude was unquestionably selfish but entirely comprehensible. The agitation for railroad reform in the East came chiefly from the manufacturing and commercial cla.s.ses. Here the main burden of the complaint was the railroad rebate. This was a method of giving lower rates to large s.h.i.+ppers than to small--charging the favored s.h.i.+pper the published rate and then, at stated periods, surrept.i.tiously returning part of the payment. This was perhaps the most vicious abuse of which the railroads have ever been guilty. That the common law forbade the practice and that it likewise violated the implied contract upon which the railroad obtained its franchise was hardly open to dispute; yet up to 1887 no specific law in this country prohibited the practice. For many years the rebate hung over the American business world, a thing whose existence was half admitted, half denied, a kind of ghostly economic terror that seemed persistently to drive the small corporation to bankruptcy and the large corporation to dominating influence. The Standard Oil Company was the "monster" that was believed especially to thrive upon this kind of sustenance, though this was by no means the only industry that maintained such secret relations with the railroads; the Carnegie Steel Corporation, for example, accepted rebates almost as persistently. It was not until 1879, when the Hepburn Committee in New York State had its hearings, that all the facts concerning the rebate were exposed officially to public view. The contracts of the Standard Oil Company with the railroads were placed upon the records and these showed that all the worst suspicions regarding this practice were justified. This disclosure made the railroad rebate one of the most familiar facts in American industrial life; and in consequence a demand arose for Federal legislation that would definitely make the practice a crime and also for some kind of Federal supervision to do effectively the work which the state commissions had failed to do.