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," "competition," "long haul and short haul," "regulation," and "government ownership," 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 passengers 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 pass. 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 competition 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 farseeing prophets who predicted the difficulties which subsequently materialized, the answer was always made that competition would protect the public from extortion and other abuses. But competition 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 illustration of this when the West Shore 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 competition 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 circumstance; 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 shippers at terminal points had their grievances, for the competition 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 constituting 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 competition and to keep up prices, it is hardly surprising that they were not popular in the communities which they affected. The circumstance that, after solemnly entering into pools, the allied roads would frequently violate their agreements and cut rates surreptitiously 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 Washington. 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 title of his society, was a secret organization, with signs, grips, passwords, 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 titles 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 classes. Its constitution 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 principal 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 membership. 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 membership 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 astonishing 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 membership 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 embarrassment 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 attitude on pending legislation and of publishing 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 passes to members of the legislatures and to public officials. A law fixing the rate of passenger 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 passing acts which prohibited any road from charging more for the short distance than for the long one. More drastic still were the laws passed by Iowa in 1874 and the famous Potter bill passed by Wisconsin in the same year. Both these measures, besides fixing passenger fares, wrote in the law itself detailed schedules of freight rates. The Iowa act included a provision establishing 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 classifications of its own. The railroads asserted 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 passed the Granger laws also established railroad commissions. For the most part these commissions followed the model of that established by Massachusetts 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 Massachusetts commission, largely owing to the high character and ability of its membership—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.