Monopolies and the People

by D. C. Cloud

But the application of any such rule now to roads already in operation would be spoliation pure and simple—spoliation as flagrant as any ever proposed by Karl Marx or Ben. Butler; if any attempt were made to carry it out, it would produce perhaps the greatest financial crash ever witnessed. It has in the first place that leading characteristic of Ben. Butler's greenback scheme, that it would not only violate a tacit pledge made by the state to individuals, but it would deprive men of rewards already earned by running great risks. When a railroad constructed for two million dollars is made to earn interest on four millions, the case is precisely similar to that of a government which in a time of great danger and perplexity sells seven per cent bonds at fifty; and the present proposal of the farmers resembles Butler's plan of paying the bondholders in 1870 what they gave for their bonds in 1862. In fact, it is the old-fashioned game on a great scale of "Heads I win, tails you lose." The west has, during the past thirty years, wanted railroads, which there was a very small chance of making profitable for a long time. It encouraged eastern men and foreigners to make them in any way they pleased, running whatever risk there was, and pocketing whatever gain there might be, and they were made. The investment then was one of great danger and difficulty; to treat it now as one of no danger and no difficulty would, be simply swindling. The word is hard, but the times demand plain speech. This was perhaps a bad mode of securing lines of communication, but the laws allowed it and encouraged it, and the people applauded it, and it is now a contract as binding in morals as in law. It is open to us to turn over a new leaf, and permit no more roads to be made in that way, but it is not open to us to treat those who lent us their money as dupes. As there has been enough of this sharp practice already, more of it would seriously shake the foundations of social order.

In the second place, as regards the older roads, it is not possible for "the people" or anybody else to ascertain what is the exact amount on which, in abstract justice, the earnings ought to pay interest. The stock, whether "fictitious" or not, has in most cases passed out of the hands of the original holders. It has been sold and resold, in open market, under the most solemn guarantees known to civilized society, with the understanding that it represented the bona fide ownership of the roads, with all their earnings, possible as well as actual. The laws, the courts, and public opinion, assured to it this character without reservation or qualification. In this character it has passed into the hands of widows, orphans, and helpless people generally, of charitable corporations, of colleges, banks, and institutions of all kinds by which the affairs of the community are administered. To throw any doubt on its value now would be to cause an amount of misery and alarm which no thinking man could contemplate without a shudder. If the state wants to make the railroads common highways, it has the right to take them, but at their market value, paying the owners what other people would pay them, and not enquiring curiously and knavishly into the original cost. Between honest parties to a bargain, that, to use a homely phrase, is "Neither here or there." The people ought, undoubtedly, to have looked forward a little when they first began to grant charters; but not having done so, they ought not to now throw on others the whole damage done by their own laches.

Though last, not least, much of the outcry over the high rates charged by railroads is due to an immense but deeply seated popular delusion as to the value of railroad property. When one puts his newspaper aside, and sits down calmly to examine the receipts which the farmers are so anxious to have cut down, the proposal we are discussing assumes a somewhat ludicrous aspect. We have before us the last issue of "Poor's Railroad Manual," which certainly ought to be perfectly studied before the minds of the public are filled with wild and revolutionary notions about railroad property. There were in operation last year in the United States, 57,323 miles of railroad, the net earnings of which bore to the cost of the roads the relation of 5.20 per cent, and to the capital stock of 3.21. This means simply that the work of transportation in the United States is, on the average, already done at a loss to the owners of the lines, or, in other words, vastly more cheaply to the public than there is the least likelihood of its being done in any other way—an assertion which anybody may verify by examining the accounts of the New York state canals. Now, fancy anybody seriously proposing to capitalists to construct railroads, as most of the western railroads were constructed, through a howling wilderness, for the chance of five and a half per cent, whenever the earnings allowed it; and fancy what subjects for spoliation are presented by the bloated owners of railroad property who pocket on the average less than four per cent on the face value of their stock. Let us add, finally, that no corporation should be restricted by law to a certain rate of earnings, unless it contracts freely to do the work on those terms or has a minimum guaranteed to it by the state. In short, the railroad question, we would remind the Chicago Tribune, is not simply a question of dollars and cents. It is a question of morality in its highest and most important phases, and one the settlement of which must touch the security of all property, and affect the value of constitutions as safeguards of individual rights.

We have gone on for thirty years treating railroads as private property, and permitting and encouraging their construction by private enterprise. Out of this numerous abuses have grown up which ought to be remedied. The corporations have grown too powerful; their influence in politics is corrupting; the power of directors in the management is too great. For the reform of all this, careful legislation preceded by careful inquiry is necessary. The prohibition of special legislation would do much to abate the corruption. Some means ought also to be devised for protecting the minority of the stockholders against the despotic power, which in some cases amounts to virtual confiscation, of those holding a bare majority of the stock, or, in other words, of giving stockholders the means of actually superintending the management of their own property and defending themselves against "rings" and "raids." Moreover, the power of directors to do anything but work the road ought to be diminished. Their discretion as regards extensions, combinations, consolidations, leases, and purchases, ought to be greatly reduced, if not destroyed. This involves two things not easily supplied. One is wise legislation, and the other honest government inspection. How far we are from both is best shown by the Illinois attempt at reform, which consists at present in taking the working of the roads out of the hands of the exceedingly able body of trained business men who now have charge of it, and compelling them to use a crazy table of "rates" drawn up by a mob of excited and ignorant politicians. If we are not prepared for this, the alternative, and the only one, is the purchase of the railroads by the state, and their management by our Murphys and Caseys. We shall not argue against this at present, for obvious reasons. But this, whatever difficulties it may present, is the only honorable way of escaping the necessity of such reforms in the present system as we have indicated above. Whatever the evils of our railroad system, they are not to be met or removed by fraud.

First. The Nation says that it has "followed the 'farmers' movement' with great interest, and with no little difficulty, owing to the heterogeneous composition of the organizations which are carrying it on, and the wide diversity of their character and avowed aims." The thought suggested is, that because the farmers are not united in their views relative to the best means to effect reform, because of the heterogeniety of their composition, the author of the circular could not understand their objects and aims. Unity of thought and action is rarely found in any body of men, even when few in number, during the discussion of ends sought to be obtained. Such unity cannot be expected in the first stages of the organization, and discussions of plans for future action. When the people living in various parts of the country, in different states, with diverse interests, but all having in view the accomplishment of a common end, attempt to unite their efforts, it would be too much to expect that they would harmonize at the outset in their views, or that they would not commit some errors. The "farmers' movement" is in its incipiency; it maybe said to be now only preparing for action, and it is yet too soon to look for united effort. The first assertion of the circular is only a covert thrust at the "farmers' movement"—an attempt to impress upon the public mind the belief that it is the effort of an irresponsible mob or rabble to defy law and override the rights of other classes, and especially of railroad corporations. Hence The Nation is desirous of talking "common sense," and in its opening discloses its "common sense" to be a plea in behalf of railroad corporations.

Second. The circular casts odium on the efforts now being made to correct the abuses practiced by railroad corporations, by the use of the following language; "When Judge Lawrence was turned out of office in Illinois by the Grangers, and Judge Craig was put in his place, we took it for granted that they were going to deliver themselves from the tyranny of railroads by putting judges on the bench pledged to interpret the state constitution in a particular way, or, in other words, as a local paper has it, by showing that 'the people were superior to both laws and judges.'" Is it true that "Judge Lawrence was turned out of office?" He was a candidate for re-election, but a majority of the people voted for another man. Judge Craig was elected to office in the constitutional method, and took the seat formerly occupied by Judge Lawrence. The people did not "turn him out," but in the legal method, when his term had expired, elected another man. But, says the circular, "we took it for granted that they (the Grangers) were going to deliver themselves," etc. There were no other judges to be elected, and there was nothing in the election of Craig that would warrant The Nation in arriving at the conclusion that control of the state was to be taken, and judges elected pledged to decide constitutional questions in a particular way. The idea is put prominently forth that the people who are attempting reform are a heterogeneous, irresponsible, body of men—a mob, who, by the mere strength of numbers, are going to overturn all law, pack the courts, and rule as mere caprice should dictate. This was taken for granted, because the people had elected one judge whom they believed was in sympathy with them. By the same rule we are warranted in assuming that the appointment of two judges in sympathy with the railroad interest of the county will revolutionize this whole government, and that all judges to be hereafter appointed will be pledged to decide all constitutional questions in favor of railroads. The author of this circular, however, is forced to admit that he was mistaken in his conclusions, and that the farmers "seek changes of a more legitimate character, and resting on a more solid formation than the creation of a subservient judiciary." While the people of the whole country knew and fully understood that the objects the farmers were seeking to accomplish were relief from the oppressions and extortions practiced by railroad companies; while the agricultural, political, and religious press of the land had been discussing the various propositions, and conventions of farmers and mechanics were meeting, and platforms and principles were being published, and the Patrons of Husbandry were discussing at public meetings and in the newspapers the best means for adoption, the author of this circular, who is now coming to the front as the champion of railroad corporations, or of the people, or of both, and is scattering his circular throughout the land, had heard nothing of the movement, and took it for granted that all that was sought by the "Grangers" was to elect "judges pledged to decide constitutional questions in a particular way;" and it required the "recent platforms" to admonish him that the Grangers looked to a reform of the abuses connected with the railroads and finances of the country.

With the new light our author received from the "platforms," he hastens to illuminate the public mind on this "vexed" railroad question. Having now mastered the situation, the writer takes it for granted that the all-important question is, "How to reduce railroads to the condition of public highways, controllable and existing solely or mainly for the convenience of the community," and concludes that the question is "as far from solution as ever."

It matters little whether railroads are considered "public highways" or private property. The name by which they are known will not make any difference. The real question is, how to make them subserve the objects for which they were intended, and at the same time afford a fair remuneration to the persons owning them. Some of the courts have already decided that the railroads of the country are public highways; but such decisions afford no relief. The Nation does not give us its opinion, nor does it seem to be aware that the supreme court of the United States has decided that railroads are public highways.

Third. The Nation says that "The farmers have been accused partly because of their escapade about the judges of Illinois, of seeking to rob the railroad companies of their lawful earnings, by forcing them to carry on their business at a loss, under the operation of cast-iron rules, drawn up without reference to its peculiar nature; that the farmers virtually acknowledged this charge when they saw its gravity, and that they accordingly now announce that they have no scheme of spoliation or confiscation in their minds, but have at last hit upon a mode of ascertaining what are 'reasonable rates,' which consists in discovering what was the amount of capital invested in constructing and operating the roads, and treating a fair per cent on this as a proper return to the stockholders, and all charges which bring in more than this as 'unreasonable,' and therefore open to prohibition by the courts and state legislatures." The Nation admits that this rule applied to companies hereafter organized, and roads hereafter built, would be just, and assures us that everybody would approve of such a law. Let the road be built with the proceeds of paid-up stock, and restricted to a fair per cent dividend on such paid stock, and The Nation will approve. To verify its hearty indorsement of this plan, it tells us in the next sentence that it does "not believe that a single mile of railroad would ever be constructed under such a rule in a new and thinly-settled country like the west and south." It would be glad to see it tried, believing "it would stop building railroads for the present, bring western farmers to a healthier comprehension of their relation to the roads, and railroad companies to a healthier comprehension of their relation to the community, and might tend to a solution of the railroad problem which would be both permanent and satisfactory." It gives as a reason why no roads would be built, that capitalists would not invest their money on unsafe security, or where the return would be uncertain. The logical deduction is, that if railroad companies are limited in the amount of their stock to the actual cost of the roads, no money can be obtained to build them; but if the company is allowed to add fictitious stock—to "water" it at pleasure, then capital can be had.

We do not discover the force of this reasoning. Railroads are usually constructed with borrowed capital. The capitalist loaning his money loans it on what he believes to be advantageous terms and good security. If a road cost $2,000,000, and is built with borrowed capital, we cannot readily see how the security is improved by issuing to the stockholders certificates for $2,000,000 of stock, no part of which has been paid. True, it may have the effect to place the road in the hands of men who are experienced in operating roads, capitalizing their earnings and watering stocks, borrowing money on bonds, and loading the road with a burden that can only be supported by extortion; but it does not increase the value of the security held by the lender, nor does it enhance the value of the road. The less burden in the way of debts there is resting on a road, the more valuable are its stock and bonds. We confess we cannot discover the strength of The Nation's argument. It seems to take it for granted that railroads can only be constructed by the class of men who now monopolize the business; in other words, that the class of unscrupulous men who have reduced the organizing of railroad companies and the manner of obtaining capital for the construction of roads to a system, are the only men who can undertake any railroad enterprise. It looks upon the south and west as destitute of men competent to organize a railroad company, or to procure means for the construction of railroads, or to construct them when the capital has been obtained. It regards the home construction of railroads in these sections as out of the question. It concludes that the method now adopted for procuring capital and constructing railroads is the only one that can be adopted. It forgets that in purer and simpler times railroads were built and owned by the parties living along their lines; that the process of adding large amounts of stock by watering was not then discovered, and that without these fictitious additions fair returns were made for the amounts invested. After all, railroads are only built when and where the business of the country requires them, save where large bounties are paid. In the west and south, where the business of certain localities and districts require a railroad, it will be built, even if the legislature should require the owners and stockholders to become so far honest as to limit their stock to the actual cost of the road, and to compel stockholders to pay up before obtaining certificates for their stock. It does not require these professional men to organize and control railroad companies, or the roads after construction.