Is the Railroad Problem Solved?

THE enormous expansion of the railroad system of the United States, the magnitude of the business interests dependent upon it, and the immense number of persons directly or indirectly affected by its operation make the “ railroad problem ” one of overshadowing importance. For many years it has been an unsolved problem, and, with new elements constantly entering into it, the solution seems more difficult and further off than ever. In the opinion of some, whether doctrinaires or practical men, it never will be solved except by their special process. A vast amount of literature in relation to it has been printed, chiefly in periodicals, pamphlets, and reports of evidence and arguments before legislative and congressional committees, the greater part of which consists of discussions of some phases only of the complex problem, — questions of temporary, local, or limited importance, in which certain reforms are demanded, certain remedies for real or imaginary evils are advocated, or a cautious conservatism adheres to old ideas, habits, and methods. But there have been in this country few attempts to consider all the elements of the problem, by digesting this mass of evidence and discussion, by collating facts, investigating principles, weighing conflicting opinions and theories, and thus with fair and candid discussion to present the subject to the student or the average reader in a comprehensive manner, with the means of forming an intelligent judgment thereon. A considerable library of books on railroad jurisprudence might be collected. But a large part of this relates to questions arising in the construction of railroads and affecting the rights of individuals, but not bearing upon the interests of the public at large. To a less extent, the more important questions affecting the rights and interests of communities, of trade and the general public, as well as the rights, privileges, and liabilities of the corporations, are discussed, — not always without prejudice, however, — and opinions and dicta are cited which are not always uniform. But what the average layman needs is a volume, not necessarily bulky, which shall set forth (1) the present legal status of railroads and the recognized principles of law bearing on the relations of railroads and the public, leaving minor and disputed questions till they are settled by the court of final appeal ; (2) the laws of trade established by the common consensus and the common sense of the commercial world as far as they are applicable to railroads; (3) the duties of the railroad corporations to the public, and the limitations of those duties as regards individuals or places whose interests may be adverse to the interests of a larger public, not overlooking the financial and physical limitations to the safe and successful operation of the roads ; and (4) the rights and privileges of railroad corporations, secured to them by their charters or by general laws. These matters have been amply set forth and discussed, in turn, somewhere in the mass of railroad literature, but to present them in a compact and comprehensive manner, without prejudice or dogmatism, is the work not of a railroad advocate nor of an “ antimonopoly ” advocate, but of the man who studies the whole problem with scientific method, and arrives at results with judicial fairness.

Within a recent period two notable books 1 have been published, in which the authors discuss the various phases of the railroad question with ability, but from different standpoints, with utterly dissimilar methods, and in a quite divergent spirit. The one proceeds by the scientific method, collating all important facts in the history of railroad development, management, and policy; studying his subject thoroughly, without any theory to maintain; seeking information from all trustworthy sources ; and citing numerous authorities, stating moot questions fairly, and drawing his conclusions with judicial fairness. He thus furnishes valuable information for those who seek it, and ample material for the fair-minded legislator. The other starts with the assumption that the present condition of railroad management and transportation is essentially bad, and he appears in the rôle of an advocate, whose clients are those who have assumed the character of anti-monopolists par excellence. He sharply arraigns the railroad corporations for their flagrant wrong-doing, and his indictment of some of them for their complicity in what is justly called “ a commercial crime ” is powerful and true. So, also, is his condemnation of those corporations which have engaged in a business ultra vires, and become a part of the anthracite coal combination. But these are presented only as illustrations of the inherent wickedness of the whole system as it exists, and furnish arguments for that class of persons who as greenbackers rave about “ bloated bondholders,” and as antimonopolists denounce all railroad managers as “ robber-barons.”

It is the province of the advocate to make the most of the facts and arguments that may help his case, and to ignore what he cannot deny; but it is on the full and fair statement of facts and law, with judicial impartiality, that a fair-minded jury of the public or of legislators should determine the issue. It is not, however, the purpose of this paper further to compare or contrast the two books referred to, but there are several propositions in Mr. Hudson’s volume which seem to demand attention.

Railroad corporations are the creatures of the State, and therefore subject to the supervision and control of the State. Railroad managers admit this as a general principle, while they seek to confine that control within the narrowest limits. The corporations have no natural rights, but by virtue of their charters and general laws they have certain artificial rights and privileges, which they are not slow to claim and exercise ; and it is because they often attempt — and too often succeed in the attempt — to extend these artificial rights beyond their legitimate exercise that a conflict arises between them and individuals, communities, or the public at large, whose natural or constitutional and legal rights are, or seem to be, invaded. This conflict, like all others, leads to claims and accusations on either side which are not always well founded, and to exaggerated statements of rights and of wrongs which seldom result in good.

Jurists declare that railroads are public highways ; which is true as the jurist understands the assertion. But the layman, smarting under some real or fancied injustice, broadens the doctrine to mean that railroads are public highways in the sense that county roads are public highways, and that the corporations claiming to own them have no more right to use them than he has; which is not true. Railroads are public highways under certain limitations and conditions : limitations established, from the necessities of the case, by statute and by common law as interpreted by the courts for many years; and conditions, some of which the corporations themselves are authorized by law to impose. It is well to distinguish between the jurist’s statement of the doctrine and that of the undiscriminating layman who arrays himself under the attractive banner of " antimonopoly.” In his zeal as an advocate to emphasize a general principle as enunciated by the courts, Mr. Hudson treads close upon the heels of the layman in his interpretation. The burden of his song is that railroads are simply public highways, and in asserting this in its broadest sense he misquotes and misrepresents a writer whom he is pleased, without apparent reason, to call a “ typical advocate ” of the “ theory of the private proprietorship of the railroads.” In an article by the writer referred to is the following sentence : “ The necessities of modern progress render a modification of old theories, and even of old principles, inevitable ; and since the introduction of railroads, the idea that private property, taken for the purpose of travel in a peculiar manner and under new conditions, becomes a public highway, as a county road is a highway, is no longer tenable, and in practice is not recognized.” Omitting the words in italics, Mr. Hudson pronounces the proposition false, and argues against what was not affirmed.

It is futile and misleading to emphasize and exaggerate the general principle that railroads are public highways, and to assert directly or by implication, as Mr. Hudson does, that the corporations have no proprietorship in them. The statement without limitation satisfies at once the theory of the socialist, who may say that if railroads are simply highways the public ought to take possession of and operate them, regardless of any false claims of ownership. But the claim of ownership is not a false claim. Whatever a person lawfully holds against an adverse claim of anybody else is his property, whether it be an estate for life or for years, or only an easement. To the extent of his interest it is property, of which he cannot lawfully be deprived without compensation. The easement granted by right of eminent domain to a railroad corporation is its property ; held for certain public uses, it is true, but property nevertheless. The capital which it invests in construction is certainly its private property before it is so converted, and remains its property afterwards, of which it cannot be deprived even by the State, except by compensation or as a penalty for violation of its charter. Its rights and privileges, secured by the law-making power, are its property ; its duties and liabilities, also imposed by the law-making power, are what make its railroad to that extent a public highway. The modern decisions of the courts are substantially to that effect. Thus the old English common - law doctrine of the rights of the public in the king’s highway, when applied to the modern railroad, has been modified by the necessities of the case.

Mr. Hudson is at least logical in his views that railroads are simply public highways of the turnpike type, for he bases all his arguments on the broadest interpretation of the doctrine, and on it founds his theory, which is to revolutionize the railroad system, remove existing abuses, and solve the troublesome problem. " Legislation,” he says, “ should restore the character of public highways to the railways, by securing to all persons the right to run trains over their tracks, under proper regulations.” To him, apparently, the practice would seem to be as easy as to promulgate the theory. He assumes to quote again from the article above referred to, as follows : “ There are some traces of an intention in the earlier charters to allow the public to use their own vehicles and motive power on the railway tracks; but this soon proved to be impracticable.” 2 And he asks, with the air of one who imagines his questions answer themselves, “ How was it proved to be impracticable ? When was the experiment made, and what proof of impracticability was the result ? ” As the writer to whom these questions are apparently addressed said nothing about proof of impracticability, the questions seem to have no force. But it may be said that the common sense of experts and all others who knew anything about the cost of locomotives, and the risk, dangers, and exigencies attending their use, even in the days of small railroad traffic, determined that it was impracticable for everybody to use railroads as turnpikes and canals had been used; and the history of railroad operation ever since, with its disasters and its fearful sacrifice of human lives by wounds and fire, has satisfied the common sense of mankind for more than half a century that it is impracticable. Mr. Hudson, however, advocates going back to the system in use on canals and turnpikes sixty years ago, and while admitting that there are obstacles in the way of successfully carrying out such a scheme, he elaborates his plan of operation. He has evidently given the subject a good deal of consideration, but he probably has had no experience in railroad operation, and writes as a theorist who overlooks many difficulties which would be manifest to the practical man. Without undertaking to discuss the details of this “ reform,” which appears to be offered as the true solution of the railroad problem, it is safe to say that no railroad manager, who has experienced the responsibilities and anxieties attending the operation of a railroad with a large traffic, would care to continue in the business under such a system.

It might perhaps be wise, were we to begin ab initio, to separate the ownership and maintenance of a railroad from the business of transportation as a common carrier; but if the latter were not conducted under one exclusive management in all its parts, there would be no end to controversies, and a certain increase of accidents. With only one common carrier distinct from the owner of the road, disputed questions of responsibility are likely to arise, in which a passenger or shipper might be able to secure his just claims only at the end of costly litigation. To multiply the carriers would be sure to multiply disputes.

But how is this revolution in transportation and vested interests to be accomplished ? Under grants of rights and privileges, which included the business of common carriers, railroad corporations have invested immense sums in terminals and equipment. If the States should attempt to take away those rights and privileges, except for a violation of charters, and virtually confiscate those large investments, the courts would promptly declare the act unconstitutional. Mr. Hudson would have it understood that the business of transportation on a railroad by the corporation owning it was at first usurped, and the privilege has been granted only in the more recent charters. “ More recent charters ” is a relative term, which may mean those granted within ten years or within forty years. Railroads have been in use in this country less than sixty years, and fifty years ago the right to exclusive transportation, if not expressly granted by charter, was recognized by general laws which have been sustained by the courts.3 If a legislature, under the reserved rights of the State, should attempt to take the property and franchises of the railroad corporations at a valuation fixed by law, and then to separate the ownership of the roads from the business of transportation, selling the one to one party and the other to other parties, the cost would be so immense, the risk so great, and the political complications so certain that the people would soon put a quietus on the scheme.

However well the plan of separate ownership and transportation might answer if we were to begin anew the building and operating of railroads on the small scale of fifty years ago, the difficulties of revolutionizing the existing order of the business appear to be insurmountable, and it is not worth while to seriously consider it as a remedy for recognized abuses. By legislation, by common law as now expounded, and by universal custom, the relation of the railroad to the general public is chiefly that of a common carrier of persons and goods ; and instead of contemplating the overturn of legislation and the decisions of the courts under it, it is wiser to seek, under the existing order of things, how to secure the best service on equal terms and at reasonable rates.

The object of the plan suggested by Mr. Hudson is to secure greater competition, that panacea of the “ anti-monopolists ” for all the grievances suffered at the hands of railroad managers, — competition between rival carriers on the same line of rails, which would indeed be raising competition to its highest power. It is a common impression that competition is the certain and only regulator of any business as it affects the public, the only preventive of monopoly. In trade and almost every industry competition has certainly been the means of reducing prices to the consumer, increasing supplies, multiplying the means of production, and stimulating invention. In this country especially it is regarded as an inalienable right. Accustomed to it, and enjoying its benefits in other branches of business, people believed, as soon as it was felt that a railroad was a monopoly, that competition would prove a certain regulator of railroad transportation also, and rival lines were projected in order to secure that competition. But it was found that here was a new and different problem from those arising in trade and manufactures, or water carriage. A railroad, from the nature of the case, is a monopoly, which the establishment of rival lines — simply other monopolies — can never wholly neutralize, because rival lines cannot well be constructed to compete at all points and in all respects. Hence competition will not prevent discrimination against places, while it will fail also to correct other abuses.

Competition in any business is by no means an unmitigated good for the consumer, while it is often a serious damage to the competitors. Unrestricted competition means survival of the strongest, not always the fittest. In railroad operation it implies the cutting of rates below the cost of operating, and consequently not only the loss of dividends to the innocent stockholder, but depreciation of road-bed and rolling stock, and danger to travelers and property. It involves utter bankruptcy to the weaker road and ruin to individuals, unless, before it is too late, a combination is made for the restoration of paying rates and a suspension of competition. And that is what always happens: unrestricted competition will go on up to a certain point, and then follows combination, by agreement or absorption of the weaker party by the stronger. The experience of fifty years has established the truth of George Stephenson’s assertion that “ where combination is possible, competition is impossible.”

But it is not alone to the owners of railroads that competition is often ruinous. By frequent and sudden changes of rates it is a source of annoyance, anxiety, and possible ruin to shippers. A reduction of a few cents a hundred on freight from Chicago to New York may cause a fall in the market price of a commodity which may bankrupt a merchant who had received a large shipment the day before such reduction. So that competition may, and often does, result in a practical discrimination no less injurious than the intentional and unjust discrimination which is the most serious abuse in railroad transportation. From this abuse it not only affords no relief, but contributes to its increase ; for in the sharp struggle for the business of large shippers rates are more readily offered which are denied to those whose business is of much less importance. It is true that competition reduces rates — whether reasonable or unreasonable — at points where it exists, and so long as it exists, but as a regulator of transportation and a corrector of abuses it is a failure. It has fostered discrimination, disturbed trade, wrought injury to individuals, and often ruined its participants. Both in this country and in England such is the impartial verdict.

It was because competition was not only ruinous to stockholders, but demoralizing to business dependent upon railroad transportation, and the cause of endless complaints, that the trunk lines resorted to federation or the pooling system. It was the one combination possible, and so far as all the parties to it adhered to the agreement, competition ceased. There is a strong antagonism in some quarters to the pooling system, on the ground that such a combination makes the corporations far more powerful and oppressive than when conducting their business singly, and that rates are maintained above the lowest possible figure. Mr. Hudson devotes a long chapter to the consideration of the subject, in which he undertakes to refute the statements of Mr. Fink and other advocates of the system as to its working and results. Mr. Hadley, on the other hand, while not advocating the system, finds that pools have removed some of the abuses which previously existed ; and considering that some combination is inevitable, he thinks it wiser to recognize and control them.

The worst that can be said of pools is that they are not a complete remedy for the evils arising from unlimited competition, and that the abuses existing under their operation are no greater than those existing under competition, and can as readily be corrected under government control. If honorably maintained, they secure stability and uniformity in rates, which are of more importance to the merchant than very low rates. If the rates are unreasonably high, there is a way of correcting that abuse under a combination as readily as on a single road where competition does not reach. Most of the grievances complained of arise, not from the poolingsystem, but from breaking the poolingcontract, by one or more members cutting rates and resorting to war against their associates. It is the competition, and not the pool, that creates the trouble. Fluctuation and uncertainty follow, and shippers have just cause of complaint; but the advocates of unlimited competition surely have no reason to complain if, when one party to a pool cuts rates, the other parties are compelled in selfdefense to resort to the same tactics. When, tired of the folly of ineffectual and costly competition, the parties restore the pool, the raising of rates of course creates a disturbance in business. Those evils are not chargeable to the pooling system, but to a violation of contract by some party to the pool. All the pools relate to the transportation of freight in or through two or more States. The general government, in assuming supervision of this interstate traffic, could control the pools as well as a single railroad.

By the interstate commerce law, a compromise of the divergent Senate and House bills, pools are absolutely prohibited. This is one of the provisions insisted on by Mr. Reagan, the godfather of the House bill, but it has not the approval of many disinterested persons who have given the subject the most careful and candid consideration, and there are well-grounded fears that it is not likely to facilitate the correction of some abuses which occasion the loudest complaints. If pools were recognized by the law, an observance of their legitimate and beneficial purposes by the parties to the contract could be enforced, and the machinery of the pools could be used to secure reforms. To forbid pools of any description is to reject a form of combination which, when honestly maintained, works the least injury to the public or the individual, and can be more easily supervised and regulated than several independent and competing lines. If you resort to unrestricted competition, sooner or later combination in some form will follow ; self-preservation or the avarice or ambition of managers will find some method of federation, consolidation, or absorption, and a new phase of the problem may be presented, with the solution still farther from attainment. A thorough investigation of this branch of the subject by an intelligent railroad commission ought to have preceded any legislative action.

It is not proposed to discuss here the interstate commerce law or to interpret its several sections. But there is one important provision adopted from the Senate bill, which, as it conflicts with Mr. Hudson’s views, may be briefly considered, chiefly because of his reference to certain state railroad commissions. One section of the law provides for a national railroad commission, with supervisory functions as to the interstate traffic of railroads, and somewhat greater powers than are given to the state commissions ; and with sufficient authority for a thorough investigation of the subject committed to them in all its branches, for the guidance of future legislation. A discretionary power is also given to the commission, by which some of the stringent features of the Reagan bill which are retained may be rendered more elastic, to meet the various conditions to which they may apply. This relates especially to what is known as the long and short haul charges. That provision in the Senate bill was drawn with great care, and was as nearly fair and just as such a regulation could well be made in a statute, providing as it did an elasticity to meet the various conditions of railroads, the necessities of trade, and the reasonable accommodation of localities. The similar provision in the Reagan bill, which was adopted in the compromise, is more inflexible and absolute, may work serious mischief, and do injury rather than good to the public by an increase of rates for the longer distance. If, however, by the authority of a commission, as provided in the law, it can be modified or wholly suspended for good cause to meet special cases, the evil may be temporary, and wiser legislation may follow. The law will affect most seriously those lines of railroad which compete with water transportation at certain points.4

The senatorial committee on interstate commerce, who had had the subject under consideration for several years, in 1885 made a careful investigation of its conditions in various parts of the Union, and directed special inquiry into the working of state commissions for the supervision of railroads. A more intelligent and careful examination of the subject has seldom been made by a congressional committee. Their conclusions are expressed in the report and bill presented to the Senate, one of the most important features of which was a national commission for the supervision of interstate railroad traffic. From their investigation of the working of state railroad commissions, they considered a similar commission essential to an intelligent and just supervision and equitable control of interstate transportation, as a much-needed means of enlightening Congress on the subject, and adjusting legislation to the real conditions and necessities of the great interests involved.

On the other hand, Mr. Hudson does not believe in railroad commissions, and has a good deal to say against them ; but his book affords no evidence that he has made any intelligent and fair inquiry into the subject. When he sneers at the Massachusetts commission, and asserts that “ drawing its salary and holding stated sessions to discuss railway interests is the limit of its usefulness,” he either manifests utter ignorance, or is guilty of willful misrepresentation. There is abundant evidence that in no other State are the relations of the railroads and the public on the whole so harmonious as in Massachusetts. There is no State in which a greater variety of questions arise, affecting the numerous and varied interests of the people, and are adjusted satisfactorily by the railroad commission. By a little inquiry Mr. Hudson might have learned that instead of “ holding stated sessions to discuss railway interests,” the commission is constantly in session for the hearing of grievances, affording advice as to rights, and adjusting differences; and the railroad corporations as well as the public, having confidence in its ability and integrity, not unfrequently seek its counsel. A large proportion of its work is thus performed without any public record. Massachusetts corporations readily comply with its recommendations, for they know that the legislature is behind the commission ; and when a foreign corporation operating a road in the State has ignored or defied it, the legislature has promptly given authority to enforce its orders. Moreover, a large part of the railroad legislation of Massachusetts has been shaped under its advice, and the State has thus escaped some of the crude and ill-considered laws that have proved futile or worked injustice in other States. All this the senatorial committee learned from the testimony of both railroad officials and representatives of the public. Had Mr. Hudson made similar inquiries, the result would have been too surely adverse to his theories.

Interstate commerce furnishes by far the largest part of the railroad traffic of the country, and gives rise to the most serious complaints. The recent decision of the Supreme Court, in the case of the Wabash, Chicago & Pacific Railroad Company v. Illinois, that a state law regulating interstate railroad traffic (that is, in this case, traffic beginning in the State and extending beyond its limits) is unconstitutional, rendered some action by Congress imperative. Previous to this decision, Chief Justice Waite, sitting as a circuit judge, had held, in the case of Peik v. Chicago & Northwestern Railway, that in the absence of congressional legislation a State might regulate rates so far as they are acts of domestic concern, even if incidentally they reach beyond the State.5 The decision of the Supreme Court removed even this possible restraint on the unreasonable rates and discriminations of the railroads, and placed the public more than ever at their mercy.

The time had come, therefore, for Congress to exercise its constitutional authority, and pass some law to regulate railroads so far as they are concerned in interstate commerce. The law finally passed, if not perfect, contains some provisions which will be a benefit to the public, and with a proper commission may be the basis of better legislation. That commission should be composed of men of known ability, unquestioned integrity, and impartiality inspiring confidence ; men who will not be content with their present information, but will make a thorough study of the problem before them. If it is used simply to provide places for persistent office-seekers, or exmembers of Congress who have failed of reëlection, it would be little better, perhaps worse, than useless.6

The interstate commerce law applies only to transportation that crosses state lines. In all other matters, whether relating to financial condition, construction, local facilities and rates, safety in operation, etc., the corporation is subject to the law and the supervision of the State in which its road lies. There is no reason why the national law and a national commission should not work well with the state laws and commissions acting within their recognized jurisdiction. Thus some progress may be made towards a fair solution of the railroad problem. But if through mistakes or the skillful strategy of railroad managers it fails, we may still have recourse to Mr. Hudson’s turnpike system.

W. A. Crafts.

  1. Railroad Transportation. Its History and its Laws. By ARTHUR T. HADLEY, Commissioner of Labor Statistics of the State of Connecticut, Instructor in Political Science in Yale College. New York : G. P. Putnam’s Sons. 1885.
  2. The Railways and the Republic. By JAMES F. HUDSON. New York: Harper & Brothers. 1886.
  3. What the writer really did say was this: “ When the earliest railroad corporations were chartered, it was supposed that they [the railroads] would be open to the use of everybody, each with his own vehicle and motive power (horses), upon the payment of tolls for such use, as canals had previously been used. The introduction of steam locomotives at once changed all that. Without taking into view the cost of locomotives, such a mode of using railroads was palpably impracticable,” etc.
  4. Mr. Hudson must have taken his quotation at second hand.
  5. See laws of Massachusetts and other States, from 1836 down to the present time.
  6. There has been a good deal of misapprehension, real or pretended, even among railroad men, as to the “short haul” provision, and some absurd interpretations have been made to mislead the public. It does not mean that the charge for a shorter distance shall not exceed the rate per mile charged for a longer distance on the same line of road, but that the charge shall not exceed the aggregate of charges for the longer distance. If the charge for transporting grain from Chicago to New York via the New York Central Railroad is twenty-five cents per hundred, the charge for transporting a like quantity from Chicago to Syracuse or Albany, under the same conditions, shall not exceed twenty-five cents per hundred. In other words, if a car-load of 40,000 pounds is hauled from Chicago to New York for $100, the charge for hauling a like car-load to Syracuse must not exceed $100. That would not appear to be burdensome to the railroads ; but to require that the rate in all cases should be proportionate to the distance would either be ruinous to the railroads or disastrous to the farmers. The sober second thought of railroad managers has adopted the above interpretation, which has been repeatedly made by Senator Cullom. The only hardship occurs at competitive points.
  7. In a dissenting opinion in the above-named case before the Supreme Court, the Chief Justice, with Justices Gray and Bradley, expresses similar views.
  8. At the time this was written the President had not appointed the commission.