The question presents such difficulties that many students, including Mr. Taylor, can find a solution of the question only in the suggestion of national control of the railroads throughout the country. Mr. Taylor’s idea, however, is that they should not be owned and operated by the nation, but that the government should have the same sort of control which it now exercises over the national banks; in other words, that the national railway commission should supervise the railroads with the same authority which the Treasury Department exercises over the national banking system.
The unrestricted building of railroads under the provisions of the general railroad acts passed in most of the States, following that adopted in New York in 1850, has given rise to destructive competition and brought about some of the knottiest points in the railroad problem. It was held for many years, and is even now contended by a great many people, that the building of railroads, like any other business, should be left free to the unrestricted enterprise of individuals and associations of individuals. “If a lot of fellows see fit to put their money into building a railroad where there is not enough traffic to sustain it, and the road goes into bankruptcy, that is their affair, not ours; it is their money that is lost.” That is about how the average citizen talks on this subject. There could be no greater mistake.
In the first place the railroads are public highways, and as such must be supervised by the community. When in ordinary conversation in this country we speak of a “road,” from Chicago to St. Paul for instance, it is always understood that a railroad is meant. In the older countries the mention of “roads” is understood to refer to a turnpike. The reason for the difference of usage is obvious. In old and settled countries the highways were in existence for centuries before rails were laid, and the word “road” therefore continues to hold its primary meaning. With us it is the railroad line which first enters into new territory, and it may be years before the contiguous region is sufficiently settled to render an ordinary wagon-road necessary.
The vital fallacy in the popular argument that “competition will settle this question of too many roads” lies in assuming that a railroad is, like an individual, private enterprise. If a man starts a hat shop in a neighborhood already well supplied with hatters, and he is bankrupted in the struggle for business, that is the end of him. He has lost his money and the shop is closed and the equilibrium of supply and demand in hats is restored. But when a railroad becomes bankrupted it does not go out of existence in that way. Where is there an instance in this country of a road, once built, having been abandoned or obliterated? No; the bankrupted road is placed under the protection of a court and in the hands of a receiver. It conducts a fiercer warfare than ever against its solvent rivals; for the bankrupted road is relieved from the necessity of paying interest on its mortgage or paying its debts, and continues to do business at lower rates than ever, for the receiver must keep it a-going pending its reorganization or whatever disposition is to be made of it.
The English people long ago reached a point which we are approaching fast, in that before a railroad is built its projectors must obtain a special charter, and in order to obtain that they must prove that there is a public need of the new line. Any one who has read the papers for the past few years will readily recall many instances of the destructive effects of building lines in territory already well supplied with transportation facilities. Take the West Shore road, which paralleled the New York Central, and not only sunk the capital of its own builders but forced a decline of fifty per cent. in the market price of New York Central, which from an eight per cent, dividend-paying corporation practically ceased to earn more than its fixed charges. The “Nickel Plate” road, paralleling the Lake Shore from Buffalo to Toledo, is another glaring instance in point. And still later we have the building of an unnecessary line from Kansas City to Chicago by the Atchison, Topeka and Santa Fé Railroad, which has resulted in the fall of the stock of the latter company from about par to less than fifty cents on the dollar, with a coincident cessation of dividends.
A host of mischiefs and evils have sprung from the almost unrestrained power of railroad officials in the matter of their charges. By charging some shippers more and others less by means of secret contracts, the officials opened to themselves a field of unlimited profit. An awkward fact, which there is no denying, is the large fortunes, in most cases running into the millions, possessed by men who are or who have been railroad officials on modest salaries, and who had nothing before entering upon these positions. The cost of transportation being such an important factor in the price of commodities, it was quite easy for the railway to enrich one man and beggar or drive out of business another in the same trade, and this was done according to the personal interests of the man or men who could thus make rates. More than this, it was not at all difficult for the railroad to impoverish one town or city and build up another by discriminating in rates.
In fact, the railroad had the power to say whether a merchant should or should not succeed in business, whether a town should or should not grow in population and prosperity. In the Hepburn committee’s investigation of the New York railroads in 1879 it was shown that the milling business in certain towns of northern New York had been killed by railroads granting rates which favored Minneapolis and other western points. In one town all the millers but one were obliged to go out of business, and it was elicited in the investigation that this man had a secret contract with the railroad by which they carried his commodity for much lower rates than any of the others. The merchants of New York at that time complained that the discriminations of the railroads against the metropolis were driving away its trade to Baltimore and other points. The nefarious contracts made by the railroads with the Standard Oil Company were discovered so recently as to be still fresh in the public mind. It will be remembered that the railroads not only carried the Standard’s oil for a fraction of that charged a certain individual oil refiner, but actually paid over to the Standard Oil Company the overcharges of which they mulcted the unfortunate individual refiner.
The creation of railroad commissions in the various States, and the more recent establishment of the Interstate Commerce Commission under the provisions of an act prohibiting these discriminations, forbidding the charging more for a longer than for a shorter haul, and inflicting a severe penalty for making railroad pools, goes far to remedy many of the most glaring evils complained of. But laws after all cannot make men moral, and, as President Charles Francis Adams, of the Union Pacific Railroad, said recently, “one of the chief causes of the railroad troubles is the low standard of commercial honor among railway officials.” The opportunities for personal profit possessed by dishonest railroad officials, while somewhat diminished by the prohibition of discriminating rates by which they were enabled to build up one town in which they had an interest, or to favor certain firms in which they or their friends were partners, have been removed; but the avenues of unlawful gain still open to them are almost innumerable. As Herbert Spencer remarked in dealing with this same subject in England a quarter of a century ago, “corporations have no souls.” A combination of men will stoop to acts which the conscience of no one of them would sanction as an individual act. So, too, a man will deal with the rights and property of a corporation as he would never think of dealing with those of an individual.
Among the more frequent abuses of their official power, we find railroad officers personally buying lands in new territory or mining lands, and then building at the expense of the corporation branch lines to reach these properties and enhance their value; the establishment of manufacturing or business enterprises, in which the railway men are often secret partners, and securing for these enterprises favorable terms, and then contracting with the railroad to do business for less than cost; the fast freight lines, which ply over many roads, and which have exceptionally easy contracts with the corporations and are in many instances the individual enterprises of railway officials. It was not long since shown that some of these lines were actually competing with the railroad proper for freight, and carrying it with express speed as low as the railroad could afford to carry it in ordinary freight cars.
Many of the swindles and abuses in railroad management owe their conception to the scandalous example of Fisk and Gould in the Erie Railroad. One or two of the little tricks played by Gould and his partner in that road, will give an idea of the possibilities of profit in dishonest railway management. When Gould became president and treasurer of the road twenty years ago, the Erie had a very favorable and longstanding lease of the Chemung and Canandaigua roads. The rental was exceedingly low, having been made at a time when the leased lines were in financial trouble. By the terms of the contract, if the Erie should at any time fail to pay the rental, the lease was to be thereby abrogated. Under the circumstances, the securities of these roads were naturally selling for a mere song. Gould, through his agents, quietly bought up these securities for about their weight in waste paper, thus becoming the sole owner of the roads. Then, in his capacity as president and treasurer of the Erie, he deliberately failed