The rate wars of the seventies gave wide advertisement to another aspect of railroad history. The most famous of these contests had their origin in the grain-carrying trade from the Lakes to the sea-board. The entry of the Baltimore and Ohio and the Grand Trunk into Chicago in 1874, stimulated a four-cornered competition among these roads and the Pennsylvania and New York Central for the traffic between the upper Mississippi Valley and the coast. Rates on grain and other products were cut, and cut again; freight charges dropped to a figure which wiped out profits; yet it was impossible for any line to drop out of the competition until exhaustion forced all to do so. A railroad can not suspend business when profits disappear, for fixed expenses continue and the depreciation of the value of the property, especially of the stations, tracks and rolling stock, is extreme. Since the rate wars were clearly bringing ruin in their train, rate agreements and pooling arrangements were devised. The latter took several forms. Sometimes a group of competing roads agreed to divide the business among the competitors on the basis of an agreed-upon percentage. Another plan was to pool earnings at the close of a period and divide according to a prearranged ratio. Sometimes destructive competition was prevented by a division of the territory, each company being allowed a free hand in its own field. In general, pooling agreements were likely to break down, although a southern pool organized by Albert Fink on a very extensive scale lasted for many years and was thought to have had a vital influence in eliminating rate-wars. Their efficacy depended mainly on good faith, and good faith was a rarity among railroad officials in the seventies and eighties. In the eyes of the public, rate agreements and pools were vicious conspiracies which left the rights and well-being of the private shipper completely out of the calculation.
Still another indictment of the railways resulted from their participation in politics. It was inevitable, of course, that the roads should be drawn into the field of legislation—the grants of public land, for example, helped bring about the result. It early seemed advantageous to attempt to influence state legislatures to pass favorable laws, and it seemed a necessity to bring pressure to bear in order to protect the roads from hostile acts. The methods used by the railway agents in their political activity naturally varied all the way from legitimate agitation to crude and subtle forms of bribery. An insidious method of influencing both law-making and litigation was the pass system. Under it the roads were accustomed to give free transportation to a long list of federal and state judges, legislators and politicians. For a judge to accept such favors from a corporation which might at any time be haled before his court, and for a legislator to receive a gift from a body that was constantly in need of legislative attention is now held to be improper in the extreme. But in those days a less sensitive public opinion felt hardly a qualm. That the practice was likely to arouse an unconscious bias in the minds of public officials is hardly debatable. The more crude forms of bribery, too, were not uncommon. It was testified before a committee of investigation that the Erie Railway Company in one year expended $700,000 as a corruption fund and for legal expenses, carrying the amount on the books in the "India-rubber account." The manipulation of the courts of New York by the Erie and the New York Central during the late sixties was nothing short of a scandal. Alliances between political rings and railroad officials for the purpose of caring for their mutual interests were so common that reformers questioned whether the American people could be said to possess self-government in actuality. Immediately after the Civil War, Charles Francis Adams, an acute student of transportation, declared that it was scarcely an exaggeration to say that the state legislatures were becoming a species of irregular boards of railroad direction. The evils of the alliance between the roads and politics were not, of course, due entirely to the former. The receiver of a pass shared with the giver the evil of the system. Many a legislator was corrupt; more shared in practices which were little removed from dishonorable. Adams, for example, gives an account of his experiences, as a director of the Union Pacific, in dealing with a United States senator in 1884. The congressman was ready to take excellent care of railroad corporations which retained him as counsel, but was a corrupt and ill-mannered bully toward the Union Pacific, which had not employed him.[2]
The most constant grievance was discrimination—that the roads varied their rates for the benefit or detriment of especial types of freight, of individuals and of entire localities. Through business between competing points was carried at a low figure, while the roads recouped themselves by charging heavily in towns where competition was absent. Shippers complained that rates between St. Paul and Chicago, for example, where competition existed were hardly more than half the charges to places at a similar distance where a single road was in a position to demand what it pleased. Manufacturers in Rochester could send goods to New York City and reship them to Cincinnati, back through Rochester, for less than the rate direct to their destination. Yet the direct haul was seven hundred miles shorter than the indirect. Secret arrangements were commonly made with favored shippers by which they secured lower rates than their competitors. When it became evident that transportation cost entered into the price of substantially everything which the ordinary citizen consumed, and when it was considered that a slight rise in railroad rates might easily amount to a heavy tax on a shipper or an entire region, it was seen that uniformity of rates was a matter of the utmost concern.
In brief, then, it was complained that the growth of the transportation system had placed enormous power in the hands of a small group of men, many of whom had indicated by their selfishness, arrogance and questionable practices that they ought not to be entrusted with so great a measure of authority.
The best example of the American railroad president after the war was Commodore Cornelius Vanderbilt. Vanderbilt began his career by ferrying passengers and freight between Staten Island and New York City. Later he turned his attention to shipping, in which he made a fortune, and planned the operation of steamships on a large scale. Becoming interested in railroading, he clearly perceived the importance of the western trade and the necessity of consolidation. Vanderbilt was a man of vision, a man who combined magnitude of plan with the vigorous grasp of the practical details necessary for the realization of his ambitions. He was buoyant, energetic, confident, ambitious, determined, despotic. Unhampered by modern conceptions of public duty, undeterred by the hostility of powerful opponents, with eyes fixed upon the combination and control of a great transportation system, Vanderbilt entered courageously upon bitter struggles for supremacy which involved the misuse of the courts, the control of the New York state legislature and a thousand charges of corrupt influence and bribery, but he welded railroads together, replaced wood and iron with steel, and constructed tracks and terminals. At his death in 1877 he left a huge fortune and bequeathed to his successors a great, consolidated railroad enterprise, skillfully and successfully administered. The great weakness of Commodore Vanderbilt and his associates, and of those who later imitated his work was their fundamental conception of the railroad as a private venture. Success consisted in bigness, great profits, crushing or buying out competitors, and administering the business for the best good of the few owners, regardless of the interests of the region through which the railway passed. Vanderbilt and many of his contemporaries were men of business sagacity and foresight, but their ethical outlook was restricted and their sense of public responsibility not well developed.
So considerable a list of grievances naturally bestirred the people to seek relief at the hands of their legislators. Two lines of action were followed. In Massachusetts, as early as 1869, a state commission was formed with purely advisory powers. Under the able leadership of Charles Francis Adams it attained great influence and worked effectively for the elimination of railroad abuses through conference and the weight of public opinion. In Illinois, on the other hand, reliance was placed upon compulsory action. The state constitution of 1870 declared the railroads to be public highways and required the legislature to fix rates for the carriage of freight and passengers, and to pass laws to correct abuses connected with the railways and grain warehouses. In compliance with the constitution the state passed the necessary legislation and placed their execution in the hands of a commission with considerable power. Other western states followed the Illinois model.
On the national scale the agitation for government action began with the minor parties. In 1872 the Labor Reformers demanded fair rates and no discrimination; in 1876 the Prohibitionists called for lower rates; in 1880 the Greenbackers stood for fair and uniform rates; four years later they urged laws which would put an end to pooling, stock-watering and discrimination, and in the same year the Republicans promised an act to regulate commerce if they were elected. The most effective force behind the demand for railroad regulation was the Patrons of Husbandry, better known as the "Grange." This society was founded by O.H. Kelley, a government clerk in Washington, in 1867. Its initial purpose was the organization of the agricultural classes for social and intellectual improvement, but later it engaged in the effort to correct transportation abuses and to arouse cooperation among the farmers in other ways. The movement grew astonishingly, especially in the Middle West, where its membership reached nearly 759,000 in 1875.
Transportation conditions in the West had not reached the relatively stable situation which characterized those of the East. In the West much new work was being done, with the attendant evils of construction companies and unnecessary and speculative undertakings. Much of the railroad stock was in the hands of eastern investors whom the western farmers pictured as living in idle ease on swollen incomes, careless of the high rates and unfair discriminations under which the farmer groaned. The constantly falling prices, which influenced the West in so many other ways, served to heighten the discontent with any abuse which increased the farmer's burden. Moreover, the western states had contributed huge amounts of land to help build the railways and they were not minded to give up the hold which their generosity had justified.
Impelled, then, by such force as the Grange and similar organizations supplied, the western states proceeded to the adoption of laws whose purposes ordinarily included railroad rate-making by the legislature or by a commission, the doing away with such abuses as discrimination, and the prohibition of free passes. The railroads promptly opposed the laws and carried the battle to the courts. The so-called "Granger Cases" resulted. Three of these were representative of the general trend of the decisions.
The famous case Munn v. Illinois, which was decided by the Supreme Court in 1876 was possibly the most vital case in the history of the regulation of public service corporations after the Civil War. The legislature of Illinois, in conformity with the state constitution of 1870, had passed a law fixing maximum charges for the storage of grain in warehouses. The owners of a certain warehouse refused compliance with the law on the ground that it was contrary to the Constitution and hence null and void. They argued that when the state fixed rates it deprived the owners of the right to set higher charges and so, in effect, deprived them of their property, in defiance of that portion of the Fourteenth Amendment forbidding a state to "deprive any person of life, liberty, or property, without due process of law."