The Railroad Question Part 23

"In 1885 the superintendent of the St. Louis and Iron Mountain Railway, before the Arkansas State Board of a.s.sessors, swore that he could duplicate such a railway for $11,000 per mile, and yet Mr. Gould has managed to float its securities, notwithstanding a capitalization of five times that amount."

Among the advantages to be derived from Government owners.h.i.+p he names the following:

"First would be the stability and practical uniformity of rates, now impossible, as they are subject to change by hundreds of officials, and are often made for the purpose of enriching such officials....

"It would place the rate-making power in one body, with no inducement to act otherwise than fairly and impartially, and this would simplify the whole business and relegate an army of traffic managers, general freight agents, soliciting agents, brokers, scalpers and hordes of traffic a.s.sociation officials to more useful callings, while relieving the honest user of the railway of intolerable burdens.

"Under corporate control, railways and their officials have taken possession of the majority of mines which furnish the fuel so necessary to domestic and industrial life, and there are few coal fields where they do not fix the price at which so essential an article shall be sold, and the whole nation is thus forced to pay undue tribute.

"Controlling rates and the distribution of cars, railway officials have driven nearly all the mine owners, who have not railways or railway officials for partners, to the wall.

"With the Government operating the railways, discriminations would cease, as would individual and local oppression; and we may be sure that an instant and absolute divorce would be decreed between railways and their officials on one side, and commercial enterprises of every name and kind on the other.

"The failure to furnish equipment to do the business of the tributary country promptly is one of the greater evils of corporate administration, enabling officials to practice most injurious and oppressive forms of discrimination, and is one that neither Federal nor State commission pays much attention to. With national owners.h.i.+p a sufficiency of cars would be provided. On many roads the funds that should have been devoted to furnis.h.i.+ng the needed equipment, and which the corporations contracted to provide when they accepted their charters, have been divided as construction profits, or, as in the case of the Santa Fe, Union Pacific, and many others, diverted to the payment of unearned dividends, while the public suffers from this failure to comply with charter obligations.

"There would be such an adjustment of rates that traffic would take the natural short route, and not, as under corporate management, be sent around by the way of Robin Hood's barn, when it might reach its destination by a route but two-thirds as long, and thus save the unnecessary tax to which the industries of the country are subjected. That traffic can be sent by these roundabout routes at the same or less rates than is charged by the shorter ones is _prima facie_ evidence that rates are too high.

"There would be a great reduction in the number of men employed in towns entered by more than one line. For instance, take a town where there are three or more railways, and we find three or more full-fledged staffs, three or more expensive up-town freight and ticket offices, three or more separate sets of all kinds of officials and employes, and three or more separate depots and yards to be maintained. Under Government control these staffs--except in very large cities--would be reduced to one, and all trains would run into one centrally located depot; freight and pa.s.sengers be transferred without present cost, annoyance and friction, and public convenience and comfort subserved, and added to in manner and degree almost inconceivable.

"The great number of expensive attorneys now employed, with all the attendant corruption with the fountains of justice, could be dispensed with, and there would be no corporations to take from the bench the best legal minds, by offering three or four times the Federal salary....

"Every citizen riding would pay fare, adding immensely to the revenues. Few have any conception of the proportion who travel free, and half a century's experience renders it doubtful if the evil--so much greater than ever was the franking privilege--can be eliminated otherwise than by national owners.h.i.+p. From the experience of the writer, as an auditor of railway accounts, and as an executive officer issuing pa.s.ses, he is able to say that fully ten per cent.

travel free, the result being that the great ma.s.s of railway users are yearly mulcted some thirty millions of dollars for the benefit of the favored minority; hence it is evident that if all were required to pay for railway services as they are for mail services, the rates might be reduced ten per cent, or more, and the corporate revenues be no less, and the operating expenses no more. In no other country--unless it be under the same system in Canada--are nine-tenths of the people taxed to pay the traveling expenses of the other tenth. By what right do the corporations tax the public that members of Congress, legislators, judges and other court officials and their families may ride free? Why is it that when a legislature is in session pa.s.ses are as plentiful as leaves in the forest in autumn?...

"The corporations have ineffectually wrestled with the commission evil, and any number of agreements have been entered into to do away with it; but it is so thoroughly entrenched, and so many officials have an interest in its perpetuation, that they are utterly powerless in the presence of a system which imposes great and needless burdens upon their patrons, but which will die the day the Government takes possession of the railways, as then there will be no corporations ready to pay for the diversion of traffic.

"As a rule, American railways pay the highest salaries in the world for those engaged in directing business operations, but such salaries are not paid because transcendent talents are necessary to conduct the ordinary operations of railway administration, but for the purpose of checkmating the chicanery of corporate compet.i.tors. In other words, these exceptionally high salaries are paid for the purpose, and because their recipients are believed to have the ability to hold up their end in unscrupulous corporate warfare where, as one railway president expressed it, 'the greatest liar comes out ahead....'

"Government control will enable railway users to dispense with the services of such high-priced umpires as Mr. Aldace F. Walker, as well as of all the other officials of sixty-eight traffic a.s.sociations, fruitlessly laboring to prevent each of five hundred corporations from getting the start of its fellows, and trying to prevent each of the five hundred from absorbing an undue share of the traffic. It appears that each of these costly peace-making attachments has an average of seven corporations to watch....

"With National owners.h.i.+p the expenditures involved in the maintenance of traffic a.s.sociations would be saved and railway users relieved of a tax that, judging from the reports of a limited number of corporations of their contribution towards the support of such organizations, must annually amount to between $4,000,000 and $5,000,000.

"Of the six hundred corporations operating railways, probably five hundred maintain costly general offices, where president, secretary and treasurer pa.s.s the time surrounded by an expensive staff. The majority of such offices are off the lines of the respective corporations, in the larger cities, where high rents are paid and great expenses entailed, that proper attention may be given to bolstering or depressing the price of the corporation's shares, as the management may be long or short of the market. So far as the utility of the railways is concerned, as instruments of anything but speculation such offices and officers might as well be located in the moon, and their cost saved to the public....

"Railways spend enormous sums in advertising, the most of which National owners.h.i.+p would save, as it would be no more necessary to advertise the advantages of any particular line than it is to advertise the advantages of any given mail route.... A still greater expense is involved in the maintenance of freight and pa.s.senger offices off the respective lines, for the purpose of securing a portion of compet.i.tive traffic. In this way vast sums are expended in the payment of rents and the salaries of hordes of agents, solicitors, clerks, etc., etc....

"Under Government control discriminations against localities would cease, whereas now localities are discriminated against because managers are interested in real estate elsewhere, or are interested in diverting traffic in certain directions....

"Another, and an incalculable benefit, which would result from National owners.h.i.+p, would be the relief of State and National legislation from the pressure and corrupting practices of railway corporations, which const.i.tute one of the greatest dangers to which republican inst.i.tutions can be subjected. This alone renders the nationalization of the railways most desirable, and at the same time would have the effect of emanc.i.p.ating a large part of the press from a galling thraldom to the corporations....

"Estimated net annual saving to the public which would result from Government control:

From consolidation of depots and staffs $20,000,000 From exclusive use of shortest routes 25,000,000 In attorneys' fees and legal expenses 12,000,000 From the abrogation of the pa.s.s evil 30,000,000 From the abrogation of the commission evil 20,000,000 By dispensing with high-priced managers and staffs 4,000,000 By disbanding traffic a.s.sociations 4,000,000 By dispensing with presidents, etc 25,000,000 By abolis.h.i.+ng all but local offices, solicitors, etc. 15,000,000 Of five-sevenths of the advertising account 5,000,000 ----------- Total savings by reason of better administration $160,000,000

"It would appear that, after yearly setting aside $50,000,000 as a sinking fund, there are the best reasons for believing that the cost of the railway service would be some $310,000,000 less than under corporate management.

"That $6,000,000,000 is much more than it would cost to duplicate existing railways will not be questioned by the disinterested familiar with late reductions in the cost of construction, and that such a valuation is excessive is manifest from the fact that it is much more than the market value of all the railway bonds and shares in existence."

The above quotations from Mr. Davis' article hardly do it justice, and it should be read in full to appreciate its full force. Many of the predictions and estimates are undoubtedly in the main correct, yet upon the whole it must be admitted that it is a rather rosy and too hopeful view to take of Government owners.h.i.+p of our railroads.

_4. State owners.h.i.+p with private management._

This is a compromise between a public and a private system of railway owners.h.i.+p and management. It is claimed by the advocates of this system that if the Government would acquire by purchase or through condemnation proceedings all of the railroads of the country, pay for them by issuing its bonds, and then lease the various lines to the highest responsible bidders, prescribing a schedule and rules of management, most of the benefits resulting from state owners.h.i.+p of railroads could be secured while nearly all its disadvantages would be avoided. It is proposed to purchase railroads at their actual value and to issue in payment bonds bearing the same rate of interest as other Government securities. This would deprive managers of every opportunity to manipulate the railroad business for purposes of stock speculation. It would also reduce the fixed charges of our railroads at least 50 per cent., the benefits of which reduction the public would chiefly share. The acquisition of the railroads by the Government would, moreover, afford the conservative capitalist a safe and permanent investment, which, with the gradual disappearance of our war debt, might become a national desideratum.

It is proposed by the advocates of this system that the Government fix rates of transportation for a certain period, to be reviewed at the end of that period upon an agreed basis. The operating companies would be required to keep their roads in repair and give sufficient bonds for the faithful performance of their contracts. If found guilty of persistent violations of the terms of their leases or of such laws as Congress might enact for their control, their bonds and leases might be declared forfeited. A new Government department or bureau would have to be established and charged with the duty of exercising the same control over railroads which the Government now exercises over national banks, and in addition to this complete publicity of the service would have to be relied upon to prevent the introduction of abuses.

There are at least two valid objections that can be urged against the adoption of such a system. Responsible companies could not be induced to lease a line for a valid consideration unless their rates were definitely fixed for a series of years. Such a course might, however, in time result in great hards.h.i.+p to the commerce of the country, as the great and unavoidable difference in the rates of the various railroad lines of the country would give to the commercial interests of some sections decided advantages over those of others. Besides this it would be very difficult to compel the different companies to keep the lines leased by them in repair. Controversies would constantly arise between the officers charged with the supervision of the roads and the operating companies, which could be ultimately determined only by the courts, causing to the Government loss, or at least delay in the adjustments.

_5. National control._

Mr. A. B. Stickney, in his work, "The Railway Problem," holds that in the interest of uniformity it is desirable to transfer the entire control of railroads to the National Government. He a.s.signs two reasons for the proposed change; one being that Congress would consider the subject of railroad control with more intelligence and greater deliberation; the other, that "the problem of regulating railway tolls and of managing railways is essentially and practically indivisible by the State lines or otherwise," and that the authority of Congress to deal with interstate traffic carries with it the right to regulate the traffic which is now a.s.sumed to be controlled by the several States.

It must be admitted that it is a difficult matter to draw the line of demarcation between National and State control, and that Congressional regulation of railways would remedy many evils which now affect our transportation system; yet there is reason to believe that the proposed change would in the end be productive of more evil than good. It is an essentially American maxim that the home government only should be trusted with the administration of home affairs. The people of each State know best their local needs, and it is safe to say that for a generation or two no serious effort will be made to amend the Federal Const.i.tution in this respect or to secure from the courts an interpretation of the interstate commerce clause greatly differing from that which now obtains.

It is thus seen that nearly all the methods of railroad management which we have discussed are, at the present time at least, more or less impracticable on account of the radical changes which they would necessitate. It is not likely that for many years to come the American people could be induced to try any extensive experiments in state owners.h.i.+p of railroads; nor is it any more likely that the present generation will undertake the difficult task of separating the owners.h.i.+p of railroads from their operation.

A nation is, like the individual, inclined to follow beaten tracks. It finds it, as a rule, easier to improve these tracks than to abandon them and mark out a new course. Any proposition made for the improvement of our system of railroad transportation is in the same proportion likely to receive the approval of the ma.s.ses in which it makes use of existing conditions. It will, therefore, be my aim, in making suggestions as to a more efficient control of this modern highway, to retain whatever good features the present system possesses, and to only propose such changes as may seem essential to restore to the railroad the character of a highway.

As has been indicated above, any system of railway regulation, to be applicable to our circ.u.mstances, must recognize the dual sovereignty of Nation and State. The great majority of our railroad corporations were originally created by the State, and are only responsible to the State as long as they do not engage in interstate commerce. Even foreign corporations must submit to all police regulations of the State in which they may do business, and as long as the American Const.i.tution remains intact the individual States will, and should, a.s.sert their right to regulate local traffic and to exercise police supervision over all railroads crossing their boundaries.

All power should be kept as closely to the people as is consistent with efficiency in the public service. It may even be questioned whether entire transfer to the Federal Government of the supervisory powers now exercised by the States in railroad affairs would tend to correct existing railroad evils more speedily or more effectually than they can be corrected through the agency of local rule. The conditions, and therefore the wants, of the different States differ so greatly that general legislation must always fail when it attempts to regulate matters of merely local concern.

The means employed by the State for the regulation of the roads under its jurisdiction should be such as are least likely to lead to a conflict with Federal authority, and experience has shown that the authority of the General Government and that of an individual State over a railroad company, which is incorporated under the laws of the latter, but is engaged in interstate commerce, may be so harmonized as to avoid conflicts between the two sovereignties without any great sacrifice of power on the part of either. Judge Cooley said recently in reference to regulation by National and State commissions:

"There is no good reason in the nature of things why the conformity should not be complete and perfect. It is remarkable that up to this time there has been so little--I will not say of conflict, but even of diversity of action between the National and State commissions. Indeed, I recall no instance at this time when anything done by the one has seemed to me to afford just ground for complaint by the other. This may justly be attributed to the fact that there has been no purpose on the part of either to do any act that could afford ground for just complaint on the part of managers of the business regulated and no desire to do anything else than to apply rules of right and equality for the protection of the general public. The aim of all regulation ought to be justice, and when it is apparent that this is the purpose of the several commissions, the railroad managers of the country may more reasonably be expected to cooperate with them much more generally than they do now. If these managers were to come generally and heartily into more full and complete recognition of the rules of right and justice that the law undertakes to lay down for the performance of their duties in their management of the great interests they represent, there cannot be the least doubt that the general result would be, not only that their service to the public would be more useful than it is now, but that the revenues derived from their business would be materially increased through the cutting off of many of the drains upon them, which now, while affecting injuriously the returns they can make to their stockholders, at the same time have the effect of prejudicing the mind of the general public against railroad management to an extent quite beyond what is generally understood by those who suffer from it.

The prejudice is inevitable, and not at all unreasonable when it is seen, as it very often is, that these drains result from an unjust discrimination against the public or some portion thereof, that they are of a character that ought to need no law and no criminal or other penalties to put them under the ban of condemnation in every office of railroad management.

"I take the liberty of adding one more thought: that the more perfect is railroad legislation, the less we shall hear of transportation by rail being made a Government function, the General Government making purchase of all the roads and entering upon a course which will lead we know not where or into what disasters."

There has been during the past twenty years a tendency in a majority of the States to place the local control of railroads in the hands of executive boards, usually styled "railroad commissioners." Previous to this period the various States relied solely upon legislation for the regulation of the transportation business, but in time they became convinced that such laws were inoperative for the want of an enforcing power. It was found that the individual s.h.i.+pper was unable to cope with a powerful company and usually would rather suffer wrong than to enter into a contest which nearly always resulted in great pecuniary loss to him. On the other hand, it was apparent that if the claim of the individual were pressed by a railroad commission, even though such a body had but limited powers, it would, under ordinary circ.u.mstances, be honored, provided it was meritorious; and if the commission was compelled to enforce a demand through the courts, it would have the support of the State to poise the wealth and power of the corporation.

The term "railroad commissioner" in the United States is nearly as old as the railroad itself; but the first officials bearing that t.i.tle were merely successors to the turnpike commissioners of yore; their duties consisted chiefly in supervising, pa.s.sing or reporting upon the construction and condition of the highway.

The first railroad commission, in the present acceptation of the term, was created in the State of Ma.s.sachusetts, in 1869. The commission consisted of three persons, whose princ.i.p.al duty was to "make an annual report to the General Court, including such statements, facts and explanations as will disclose the actual working of the system of railroad transportation in its bearing upon the business and prosperity of the commonwealth, and such suggestions as to its general railroad policy, or any part thereof, or the condition, affairs or conduct of any railroad corporation, as may seem to it appropriate." This board also had the general supervision of all railroads and power to examine the same. It was required to give notice in writing to any railroad corporation which, in its judgment, was guilty of any violation of the railroad laws of the State; and if such company continued the violation, after such notice, it became the duty of the commission to present the facts to the Attorney-General. It was further made the duty of the board to examine, from time to time, the books and accounts of all railroads, to see that they were kept in a uniform manner, and upon the system prescribed by the board. It was also required to investigate the cause of any accident on a railroad resulting in loss of life. These being the princ.i.p.al duties of the board, its powers were very limited; but its personnel supplied the power which the law had withheld. The success of this commission exceeded even the expectations of the advocates of the system, who, in view of the limited powers of the commission, had antic.i.p.ated but meager results.

To quiet the Granger movement the railroads favored and finally secured the adoption of the commissioner system in the West, and South, in which sections it attained its highest development. It was soon found that a commission after the Ma.s.sachusetts model, when composed of men less competent or less disposed to do their duty, was liable to dwindle into a statistical board or even become a pliant tool in the hands of the railroads. Furthermore, the conditions in Ma.s.sachusetts, where railroad owners and railroad patrons lived side by side and were in many instances even identical, differed materially from those found in the West and South, where railroad patrons were made to pay excessive rates, to produce liberal dividends on fict.i.tious stocks for non-resident stockholders. Here a conflict between the railroads and such commissions as were determined to do their duty became often unavoidable. Railroad companies were as a rule disposed to disregard the recommendation of a commission to reduce exorbitant rates. This led in those States which suffered most from unjust tariffs to a popular demand to endow the commission with the power to fix _prima facie_ rates. While the number of States which have taken this step is at present still limited, public opinion in its favor is growing throughout the nation, and a general adoption of this policy is probably only a question of time. There is every reason for believing that a commission vested with the right to fix local rates, to require full and complete reports from railroad companies, and to make proper regulations for their control, aided by penal legislation to compel compliance with their orders, will be a sufficient aid to the State in exercising such control over the companies operating lines within its borders as its dignity and the welfare of its people demand.

Viewing the question from a national point of view, we find that, owing to the great and constantly increasing importance of interstate traffic, improved Federal agencies for railroad control are a pressing need.

While much has been accomplished by the Interstate Commerce Act, much yet remains to be done. Violations of the act are still far too frequent, and they have been encouraged by unfriendly decisions by some of the inferior Federal courts.

It must be admitted that nearly all the evils connected with interstate transportation could soon be remedied were it not for the difficulties which the Interstate Commerce Commission encounters in the enforcement of the law. On the one hand it is not possible with the machinery at present provided to detect and prove a considerable part of the violations of which railroad managers are daily guilty; and on the other hand, if these violations are brought to light, there would not, according to the testimony of a prominent railroad man, be courts enough in the country to try the violators. Besides this, such is the artfulness of railroad managers that in a majority of cases it would be impossible to reach the guilty party, and subordinates would have to answer for the transgressions of their superiors.

To provide adequate machinery for the supervision of the transportation business, a national bureau of commerce and transportation should be established. As its chief a director-general of railroads should be appointed by the President, on the recommendation of the Secretary of the Interior, by and with the advice and consent of the Senate. This officer should hold his office for a term of at least six years, unless sooner removed by the President, upon reasons to be communicated by him to the Senate. He should not be interested either directly or indirectly in railroad securities. The Interstate Commerce Commission should be continued as an advisory board. It should upon the whole retain its present functions and should be consulted by the director-general in all matters requiring expert investigation. A number of divisions or sub-bureaus should be established, and each should be entrusted, under the supervision of the director-general, with such duties as may be deemed necessary to secure the greatest efficiency.

There should be a division charged with the duty of carefully examining and compiling the detailed reports which the various companies should by law be required to make to the bureau. An inspection service should also be established, similar to that now maintained by the Treasury and Post-office Departments. Its officers should be empowered to enter all railroad offices and examine the companies' books, board trains and employ other legal means to detect violations of the railroad law and report them to the chief of the bureau.

Railroad companies might be permitted to make interstate rates, but all schedules should be submitted to the bureau for approval or revision.

Legal provision should be made against every sort of speculation in railroad stocks on the part of railroad officers, who should, in addition, be prohibited from sharing in the profits of favorite rates, as at present. All executive officers and directors of railroad companies should, like officers of national banks, be required to qualify by taking an oath of office, and should be held to strict accountability for their official acts. Officers of railroad companies should not be allowed to receive and use proxies at stockholders'