THE CAMDEN AND AMBOY RAILROAD COMPANY.
For almost forty years the Camden and Amboy Railroad was the only direct route between the cities of New York and Philadelphia. It is doubtful whether previous to the war a more important or a more remunerative road existed in the United States, for, besides connecting the two largest cities in the Union, it formed part of the direct land route from the East to the South.
The efforts to open a direct through route between New York and Philadelphia date back to the year 1812, when the construction of a canal between the Hudson and the Delaware was proposed, but an ill-advised jealousy of the State of Pennsylvania delayed for many years the realization of the project. When this obstacle was finally overcome, a change of sentiment had taken place in New Jersey. Railroads had just made their appearance in the United States, and a large number of the people of New Jersey preferred a railroad to a canal.
The matter was finally compromised in the legislature of New Jersey, which on the 4th of February, 1830, simultaneously granted charters to the Delaware and Raritan Canal Company and the Camden and Amboy Transportation Company, fixing the capital stock of each company at $1,000,000, with the right to increase it to $1,500,000. The charter further stipulated what taxes should be paid to the State, and also contained the provision that within five miles of the starting-point and within three miles of the terminus of each line no other railroad or canal should be built. It was believed the existence of both a water and a land route would be sufficient to maintain competition on this important thoroughfare of interstate traffic. The construction of the railroad, which had been surveyed in almost a straight line between its termini, was at once commenced. A number of well-to-do and practical men took hold of the enterprise, among them one John Stevens, who together with his three sons took one-half of the capital stock. The canal project did not do so well at first. At the middle of the year 1830 only about one-twelfth of its capital stock had been sold, and there was great danger that the company might forfeit its charter, as the time allowed for the subscription of its stock was nearing its end. At this juncture Robert Field Stockton, a young man of ability, enthusiasm and wealth, came to the rescue of the canal company. He not only bought for himself a goodly share of the canal stock, but also prevailed on his rich father-in-law, Mr. John Porter, to invest $400,000 in the enterprise. The financial difficulties of the company were thus removed. At the next session of the legislature Mr. Stockton secured an amendment to their charter which apparently only authorized the enlargement of the canal, but in reality empowered the canal company to construct a second railway.
It was from the beginning Mr. Stockton's object to share with the railroad company the advantages which their line promised to give them. The enlargement of his company's franchise placed him in a position to dictate terms to the Camden and Amboy Transportation Company. The latter was given the choice, to prepare for competition with a rival railroad line, or to consolidate with the Delaware and Raritan Canal Company. It chose the latter alternative, and on the 15th day of February, 1831, the two companies became one. The consolidation still required the sanction of the legislature. This was obtained in consideration of the transfer of 2,000 shares of the capital stock of the company to the State. It was further stipulated that the new company should pay to the State a tax of 10 cents for each passenger and of 15 cents for each ton of freight carried over its line through the State, as well as an annual tax of $30,000, and that the State in return should protect the company against any and all competition in the direct passenger and freight traffic between the cities of New York and Philadelphia. Serious doubts were at the time entertained by many, whether the State of New Jersey under the Federal Constitution possessed the right to thus create a monopoly in transportation facilities, and to regulate arbitrarily the commerce between sister States.
Five days after it had granted this charter to the Camden and Amboy Company, the legislature granted another charter authorizing the construction of a railroad from Jersey City to New Brunswick on the Raritan River. On the 23d of February of the same year a charter had been granted by the legislature of the State of Pennsylvania to a company which had been formed for the purpose of constructing a railroad from Philadelphia to Trenton. This company had likewise been authorized by its charter to buy the right of way for a railroad from Trenton to New York, which it proceeded at once to do. It was evident that as soon as the two new roads would meet at New Brunswick, an understanding would be reached between them, by which another through line would be created between New York and Philadelphia, which would have the advantage over the Camden and Amboy road that it touched the capital of New Jersey and could thus make itself serviceable to members of the legislature, officers of State and influential politicians.
The Camden and Amboy Freight Company soon arrived at the conclusion that it could not permit such rivalry. It appealed to the legislature for protection. Resolutions were passed in its favor, but the Philadelphia and Trenton Railroad Company paid no attention to those resolutions, but quietly continued to lay its track. Mr. Stockton and his friends did not dare to invoke the aid of the courts, because a judicial investigation might have resulted in the destruction of their own charter. The situation was critical, but Mr. Stockton was equal to the occasion. He bought quietly a sufficient number of shares to control the management of the Philadelphia and Trenton road, and, in April, 1836, secured the consolidation of the Philadelphia and Trenton and the Camden and Amboy railroad companies.
The canal of the company was not completed until 1838. It had consumed a sum of money largely in excess of the original estimate. To connect the two lines of the consolidated company, a branch road was constructed from Trenton to Bordentown. Later the road from Trenton to Brunswick was completed and an agreement entered into with the Jersey City company for a division of the traffic of the two roads. The large cost of these improvements suggested to the company the advisability of increasing its revenues and of decreasing its expenditures. Its charter provided for a payment to the State of 10 cents for each through passenger. By an artifice the company avoided the payment of this tax. It compelled its through passengers to walk over the bridge at Trenton and then continue their journey by rail via Bordentown to Jersey City.
The company's charter also stipulated, that the fare between New York and Philadelphia should not exceed $3 per passenger. Its officers interpreted this stipulation to apply only to the intermediate traffic and proceeded to collect $2.50 for the trip from New York to Trenton, and $1.50 from there to Philadelphia, thus increasing the fare for the entire journey to $4.00, one dollar above the maximum allowed by law. One Jacob Ridgway, who was the owner of a ferry-boat at Camden, saw here an opportunity for starting a lucrative business. He bought a steamer and carried passengers from Philadelphia to Trenton for one-third of the fare demanded by the railroad. After the Camden and Amboy Company had made several unsuccessful attempts to intimidate Mr. Ridgway and his force, one of which even brought Mr. Stockton in contact with the criminal courts, it purchased the boat with all terminal facilities at Philadelphia and Trenton. The attention of the legislature of New Jersey was repeatedly called to the company's failure to comply with the provisions of its charter, but these appeals were on the whole of no avail. In 1842, after a long discussion, a resolution was carried declaring the charge of $4 for the through journey illegal, but the company entirely ignored this legislative reminder and continued its old tariff.
The company's charter also reserved for the State the right to acquire the Camden and Amboy road under certain conditions upon the payment of a reasonable compensation. In 1844, through Mr. Stockton's engineering, the constitution of New Jersey was so amended as to practically deprive the State of the power to acquire the company's property.
During the first few years of the existence of the Camden and Amboy Transportation Company its business was managed in the interest of its owners, but soon a few of its leading stockholders managed to turn its enormous profits into their own pockets. The Stevens and Stockton families, together with two other directors of the Camden and Amboy Company, had come into possession of a line of steamers that plied on the Raritan, between New Brunswick and New York. The enterprise, in spite of its largely watered capital, had been made to pay dividends ranging from 30 to 40 per cent. Its owners saw an opportunity for a larger field of usefulness and larger dividends. In 1834 a majority of the board of directors of the Camden and Amboy Company proposed that the company rid itself of the responsibility connected with the transportation business and lease its railroad and canal. Mr. Stevens, as representative of the Camden and Amboy Company, then negotiated with Mr. Stevens, the representative of the Napoleon Steamer Company, and the negotiations soon resulted in an agreement between the two companies by which the latter leased the railroad and canal lines of the former and agreed to pay it a fixed toll of $7.64 per ton upon all freights carried by rail, and one-quarter of all its revenues derived from the canal. Soon afterward the Napoleon Company entered into a similar contract with the Camden Ferry Company and now had a complete monopoly of the transportation business between New York and Philadelphia. It at once commenced to develop a system of organized plunder. Instead of the maximum charter tariff of 8 cents per ton per mile, it charged 10, 12, and even 15 cents. The through rates charged were several times as high as those fixed by the charter. Canal rates were raised to such an extent as to make them prohibitory and to compel the public to ship by rail. It is difficult even to estimate the total annual profits of the directorial syndicate. Their accounts, if any were kept, were not accessible, and surmises can only be based upon such data as occasionally found their way to the public. In 1845 the share of the canal tolls paid to the company's stockholders was $359,000. The directors' share under the terms of their lease is thus found not to have been less than $1,077,000. Another item of $170,000, tolls collected for the transportation of 27,000 tons of freight, was so divided that the Camden Ferry Company, or its other self, the directorial syndicate, received $32,000 for one mile, while the Camden and Amboy Railroad Company received $63,000, or less than twice as much, for ninety-two miles. The directors under their lease were entitled to the remaining $75,000.
The service of the company was as bad as it was expensive; its trains were slow and irregular, and its employes arrogant. The syndicate which controlled the company defied its stockholders, the public and the courts alike. When one of the stockholders, a Trenton merchant by the name of Hagar, applied to the courts for an order to compel the directors to produce their books and render an account, the syndicate bought Mr. Hagar's shares, for which he had paid $125 a share, at the price of $1,456 a share. The suit was then withdrawn and the matter hushed up.
In 1848 a number of articles appeared in a paper published at Burlington, Pa., which were signed by "A Citizen of Burlington" and contained much surprising information concerning the Camden and Amboy Transportation Company. It was charged that the directors had defrauded both the State and the company's stockholders of large sums of money, that they had grossly violated their charter by charging illegal and extortionate rates, oppressive to both commerce and travel. It was shown that while the average rate per ton per mile of thirty-five neighboring roads was 2.85 cents, that of the Camden and Amboy Company was 4.54 cents. It was also shown that neither the stockholders nor the State had received the share of the company's revenues to which they were entitled. These articles were extensively reprinted and caused a great commotion wherever they appeared. After the first storm had subsided the directors issued an address to the people of New Jersey, in which they bitterly complained of the people's loss of confidence in their integrity, and declared that the charges preferred against them were founded on falsehoods.
The "Citizen of Burlington" replied by accusing the directors of defalcation and falsifying their books. He charged that from 1840 to 1847 no account had been rendered of the receipt of no less than $5,266,431, on which $493,066 was due to the State. As soon as the legislature convened, a resolution was introduced that a commission be appointed to investigate the charges preferred against the Camden and Amboy Transportation Company. The resolution was adopted, but it was virtually left to the accused to select the members of the commission. That the directors had a guilty conscience appeared from the fact that the last annual report of the company, which had just been printed, was withdrawn and destroyed. To silence their unknown accuser, they threatened him with criminal prosecution. He now gave his name. It was Henry C. Carey, the noted writer and authority on political economy. Mr. Carey did not give up the contest. He proceeded to show how the policy of the managers of the Camden and Amboy Transportation Company depressed commerce, manufactures and agriculture alike. He showed how the company as a public carrier discriminated in favor of industries which they carried on as private individuals. He claimed that the company had forfeited its charter, and that it was the duty of the State to authorize the construction of another road. In the meantime, early in 1849, the legislative investigation committee submitted its report. It was perhaps as shameless a document as was ever placed before a legislative assembly. It lauded the directors, to whose influence the members of the commission owed their selection, and whitewashed their past management of the company's affairs.
But the people of New Jersey were far from being satisfied with this report and demanded the appointment of another committee. Another investigation was ordered, and this time the company, or rather its directors, found it impossible to control the selection of its members. Soon after their appointment the committee asked Mr. Carey to lend them his assistance in their labors, and he readily consented. During the summer of 1849 the members of the committee had occasion to go to Bordentown, to inspect the company's books. From that time on a wonderful change seemed to have come over the committee. They found they could dispense with Mr. Carey's further services. What had previously appeared to them a ring of rapacious monopolists seemed now an association of worthy philanthropical gentlemen. In their report to the legislature they completely exonerated the company's managers. They admitted that the State had not been paid all that was due to it, but they asserted that this difference in the company's accounts was due solely to clerical errors, for which the management were in no wise responsible. The report was accepted, although not even the annexed testimony supported it, and thus the matter was dropped.
This was a great victory for Mr. Stockton and his friends. It demonstrated the success of their methods of dealing with public servants. Mr. Carey repeated his charges, but the directors failed to prosecute him for libel as they had threatened. He asked that he be permitted to inspect the company's books, but was met with a peremptory refusal. Public opinion was defied, and the old methods were continued.
The extortionate and discriminating tariff of the only through route of New Jersey affected seriously the agricultural as well as the commercial interests of that State. The Camden and Amboy monopoly kept the State of New Jersey for many years far behind the New England States in railroad facilities. In 1860 New Jersey had only one mile of railroad for every 17.6 square miles of territory, while the proportion of miles of railroad to square miles of territory for the same year was 1 to 7.9 in Connecticut, 1 to 7.6 in Rhode Island, and 1 to 6 in Massachusetts. At present New Jersey has one mile of railroad to every 3.79 square miles, and therefore leads all the States in the Union in density of railroad track.
The question may be asked how the Camden and Amboy Transportation Company, or rather the syndicate which controlled it, contrived to maintain its power for so many years, to the great detriment of industry and commerce. The only answer that can be given is that the men for whom the maintenance of the monopoly was a source of great wealth were constantly using a part of this wealth for the corruption of those who were in a position to influence public opinion or to direct the policy of the State. Prominent politicians were favored with passes, attorneys were retained by the company as local solicitors, corrupt and servile legislators were bribed by money or the promise of lucrative positions, and newspapers were given large subsidies. In addition to this public men were constantly made to realize the political power of the company, whose many employes had always been trained to do the bidding of their masters. If the opposition, in spite of this, was ever successful at legislative elections, the company's managers found it less expensive to gain the good will of a few members of the legislature after election than it would have been to gain the good will of their constituents before election. Dissatisfied stockholders who threatened with judicial investigation were quietly bought out or impressed with the danger of inviting public discussion in regard to the validity of the company's charter, as it might lead to its annihilation. The good people of New Jersey made several attempts to rid the State of the despotism of the company by making the question a political issue, but they were each time defeated through the lavish and scandalous expenditure of the company's money.
The original charter of the Camden and Amboy Railroad Company was granted for a period of twenty years, and should have expired in 1853, but its managers succeeded in having it extended to January 1, 1859. In 1854 another extension was asked for, and after a long and bitter debate the company was again triumphant. An act was passed on the 16th of March, 1854, making it illegal to build previous to the first day of January, 1869, without the consent of the Camden and Amboy Transportation Company, a railroad in the State of New Jersey for the transportation of passengers and freight between New York and Philadelphia. At the end of this period even a third extension was granted, and the company, though after January 1, 1867, under a new name, maintained its monopoly until it consolidated, in 1871, with the Pennsylvania Railroad Company.
That the spirit of the past is still at work was shown by the recent act of the legislature of New Jersey legalizing the consolidation of the coal roads. The coal barons found the legislature as servile as the managers of the Camden and Amboy Railroad Company had found them of yore, and their well-planned scheme would probably have been successful had it not been for Governor Abbot's courageous veto of the disgraceful act, and it is more than probable that they will yet succeed. They have, in fact, during the last year advanced the price of coal about one dollar per ton.
The Standard Oil monopoly may be said to be the crowning monument of corporation conspiracy. It is, indeed, doubtful whether the combined brotherhoods of mediæval knights ever were guilty of such acts of plunder and oppression as the Standard Oil Company and its railroad allies stand convicted of before the American people. The facts that have been unearthed by official investigations show a frightful prevalence of corporate lawlessness and official corruption, and there can be no doubt that, could certain high railroad dignitaries have been compelled to testify, and could the truth have been fathomed, it would have been found that not only the public, but railroad stockholders as well, were victimized by those transactions.
The founder of the Standard Oil monopoly was some twenty years ago part owner of a petroleum refinery at Cleveland, Ohio. His fertile brain conceived the thought that with the coöperation of the railroad companies a few men of means could control the petroleum business of the United States. With this end in view he approached the managers of the New York Central, the Erie and the Pennsylvania Central railroad companies, and on January 18, 1872, entered with them into a secret compact by which they agreed to coöperate with the South Improvement Company (an organization formed by that gentleman to aid in the accomplishment of his designs) to grant to said companies certain rebates and to secure it against loss or injury by competition. The South Improvement Company, in consideration of these favors, guaranteed to the railroad companies a fair division of its freights. The existence of this contract soon became known and caused a violent protest among the oil-producers. An indignation meeting was held and a committee was appointed to wait on the railroad managers and demand fair treatment for all.
The railroad companies yielded and promised to give equal rates to all shippers and to grant to no person either rebates or any other advantage whatever. New rates were fixed for the transportation of both crude and refined oil, and it was agreed on the part of the railroad companies that at least ninety days' notice should be given of any change that might be made in the rates. Steps were also taken to have the charter of the South Improvement Company canceled because it had been found that it was neither the owner of a refinery nor of an oil well, and could therefore not comply with the legal requirements concerning the organization of stock companies. While the South Improvement Company thus came to a sudden and rather inglorious end, its founders soon contrived other means to carry out their ingenious plans. They bought a refinery, reorganized by taking the prepossessing title of Standard Oil Company, and were now prepared to resume their operations under the guise of legal authority.
The railroad companies seemed to have relished their novel business connections, for, without paying the least attention to the agreement into which they had entered with the other producers and refiners of oil, they extended the privileges of the defunct South Improvement Company to its successors. The new company received secret rebates ranging from 50 cents to $1.32 per barrel. The agreement also contained the stipulation that if lower rates should ever be granted to their competitors, an additional rebate should be given to the Standard Oil Company. Endowed with these privileges, the favored company proceeded to unite under its banner, by consolidation, purchase or lease, the leading refineries of Cleveland.
The effect of the discriminations practiced against independent refineries soon became apparent. In less than two years there were closed in Pittsburgh twenty-one refineries, that represented an aggregate capital of $2,000,000 and had given employment to over 3,000 people. A large number of the remaining refineries were forced to consolidate with the Standard Oil Company.
The next step toward the entire suppression of competition was an attack planned against the independent pipe lines. The Standard had early secured control of the United Pipe Line. To exterminate competing lines, they again appealed to the railroad companies, and on the 9th day of September, 1874, J. H. Rutter, general freight agent of the New York Central, issued a new oil tariff which discriminated greatly in favor of the oil brought by the United Pipe Line to the refineries. Up to that time this company had done from 25 to 30 per cent. of the total business of the various pipe lines. Within one year after the adoption of the new tariff it did fully 80 per cent. of the entire business. This forced the independent lines either to sell out to the Standard or to suspend business, for the latter's rebate was larger than their toll. The oil tariff of the Pennsylvania Central compelled the independent Pittsburgh refiners to ship their refined oil over that company's line, if they would avail themselves of the rebate which it granted on the rates for the transportation of crude oil to Pittsburgh. The evident purpose and the effect of such a tariff was to prohibit oil shipments over the Baltimore and Ohio. Had this road made ever so reasonable a tariff, the combined charges for the transportation of the crude petroleum from the oil regions to Pittsburgh by the Pennsylvania Central, and for that of the refined oil to the sea coast by the Baltimore and Ohio, would still have been prohibitive in competition with the special transit rates granted to the Standard Oil Company. As a remedy it was proposed to organize a new pipe line, it being believed that the crude oil could be brought to Pittsburgh by that line, refined there, shipped to the seaboard by the Baltimore and Ohio, and sold there at as good or even a better profit than the product of the Standard, notwithstanding the favors received by the latter from the allied trunk lines. This movement resulted in the creation of the Columbia Conduit Company, which at once proceeded to lay its pipes from the oil wells to Pittsburgh. Under the laws of the State of Pennsylvania it became necessary for this company to obtain the permission of property-holders to lay the pipes through their lands. Consent was everywhere readily given, and the pipes were laid without hindrance until the track of the Pennsylvania Railroad was reached, within a few miles of the Pittsburgh refineries. This company peremptorily refused to let the pipes be laid under its track. The pipe line company after some delay contrived a way to obviate the difficulty. It laid its pipes on each side of the road as close to the track as it could without trespassing against the legal rights of the Pennsylvania Central, and then conveyed the oil from one side of the track to the other by means of large oil tanks on wheels, which could not be prevented from passing over the railroad track at the public crossing. After several months the railroad company allowed the pipes to be laid under its track, but it soon appeared that another combination had been effected to destroy the value of this concession. A railroad war had given the three trunk lines an opportunity to force the Baltimore and Ohio into the pool. A uniform rate of $1.15 was established for shipments of refined petroleum from any point to the seaboard. While this was in itself an unjust discrimination against Pittsburgh, which is 250 miles nearer tidewater than Cleveland, the railroads in addition granted the Standard secret rebates which enabled it to sell its oil on the coast for less than the sum of its first cost at the refineries and the open rate of transportation to the points of export. The independent refiners of Pittsburgh found themselves again cut off from the market, but necessity soon made them discover another outlet. Shipping their oil down the Ohio River to Huntington, W. Va., they had it taken by the Chesapeake and Ohio Railroad to Richmond. In spite of the fact that this route was more than twice as long as the direct line from Pittsburgh to the seaboard, and in spite of the further fact that it necessitated an expensive transfer, a rate equal to about two-thirds of the trunk line rate for the direct shipment proved remunerative to the Chesapeake and Ohio. The independent refiners kept up their competition for some time, but the great disadvantage of river travel and the insufficient export facilities of Richmond finally forced them to give up the contest.
Until the year 1877 the Standard Oil Company had worked hand in hand with the railroads. It had obtained all its privileges by asking for them and by holding out inducements to railroad managers to grant them. It now commenced to dictate terms to refractory railroad companies.
The Pennsylvania road ventured to carry oil not the property of the Standard on terms which that company did not approve. The latter ordered the road to refuse to carry the product of their competitors. This the railroad company declined to do, and the Standard at once withdrew its custom. The Pennsylvania retaliated by carrying the oil of the independent refineries at merely nominal rates and even went so far as to make its rates dependent upon the profits realized by the shippers. A fierce freight war was thus precipitated, in which the Erie and New York Central supported the Standard Company. The Pennsylvania road was soon forced to surrender and sign an ignominious treaty.
The Baltimore and Ohio, which had again commenced to carry the product of those Pittsburgh refineries which received their crude oil through the Columbia Conduit Company, was in a similar manner forced to reject their freights. The pipe line, whose value was thus almost entirely destroyed, was soon after sold to the Standard Oil Company. This company had now an almost complete monopoly of the oil business of the United States, and still it was not satisfied. It appears that some of the producers of crude oil had been in the habit of shipping a part of their product in spite of the advantages which the Standard had through its rebates. To prevent even these shipments, or rather to exact another tribute from railroad stockholders, the American Transfer Company, one of the auxiliaries of the Standard Oil Trust, in 1878, demanded and received from the Pennsylvania road a "commission" of 20 cents a barrel on all shipments of petroleum made by any shipper. It had been shown to the satisfaction of the Pennsylvania Railroad Company that similar commissions, ranging from 20 to 35 cents a barrel, were being paid by the New York Central and Erie roads.
When, in 1879, an effort was made to establish a pipe line from the oil regions to the seaboard, nothing was left undone by the trunk lines to thwart the enterprise. The new company finally succeeded in making connection with a railway which had no part in the pool, and there was some hope that under this arrangement competition might at least be maintained at some points. The Standard Company again appealed to the trunk lines to protect it against injury by competition and obtained from them a special rate of 20 cents per barrel, which rate was even reduced to 15 cents per barrel two months later. Against such a rate it was impossible to compete, and after a short struggle the new line found itself compelled to sell its works to the Standard.
To crown its monopoly, the Standard Oil Company finally bought of the New York Central and Erie roads their terminal facilities for the transportation of oil, and thereby made it virtually impossible for them to transport oil for any of its few remaining competitors. Mr. Josiah Lombard, part owner of the New York refinery, stated in 1879 before the investigating committee of the legislature of New York that in 1878 he had requested the Erie Company to transport for him 100 cars of crude oil from Carrollton to New York; that he had called upon Mr. Vilas, the general freight agent of the company, in person, but had never been able to obtain the cars, though the oil had been held in Carrollton three or four months ready to be loaded. This gentleman also testified that he had found it impossible to obtain cars from the New York Central, and that the company's general freight agent had informed him that the road did not own and could not furnish any oil cars.
After the Standard Oil Company had secured control of the various pipe lines of the oil regions, it frequently lowered the price of crude oil to such an extent as to make its production unprofitable. It even refused to buy oil, basing its refusal upon the ground that the railroad companies failed to furnish cars for its transportation. When the well-owners had their tanks filled, they had the choice to let the oil run away or to be at the expense of closing up their wells. In one instance, however, when their ruse threatened to cause a riot, several hundred cars were brought to the wells within a few hours.
The Standard Oil Trust, not satisfied with the monopoly of the wholesale trade, even tried in places to control the retail trade by peddling oil at private houses. This method of destroying competition was chiefly resorted to where independent dealers obtained their supply by a water route.
That many of the deeds of the Standard are dark is evident from the fact that its members, when summoned by the Hepburn committee, declined to testify, lest their testimony be used to convict them of crime. Officials of the trust have bribed or attempted to bribe employes of rival firms, for the purpose of ruining their business. By its peculiar methods the company has been successful in courts of justice and legislative halls, and has enjoyed an impunity for its conspiracy against the public that is without precedent in America. It has accumulated a capital of more than $100,000,000, and it is even claimed that for years its annual dividends have exceeded in amount the capital actually invested. This is not at all strange when it is considered that they have levied upon the producers, consumers and transporters alike. Mr. Cassat testified before the New York investigating committee that in eighteen months the railroads had paid the Standard in rebates no less than $10,000,000. And the very payment of these enormous rebates enabled the Standard to decrease the price of oil to the producer and to increase it to the consumer.
It is claimed by the defenders of the Standard monopoly that under the trust the price of petroleum has been constantly decreased to the consumer. That the price of kerosene is lower now than it was fifteen years ago is undoubtedly true, but the reductions were brought about not by the trust, but in spite of the trust. The price now maintained is an unnatural one. The Standard Oil Company never lowered the price of its oil except when compelled to do so by competition. The largely increased output of crude oil, the improved methods of refining, the greatly lowered cost of transportation would have lowered the price of coal oil without the philanthropy of the Standard Oil Company. Iron, steel, calico, woolen goods and a thousand other commodities have within almost the same period suffered much larger reductions than coal oil. But even if the Standard monopoly had voluntarily lowered the price of its products, the American people could never approve of its methods. They can never be made to believe that the end sanctifies the means, especially when those means are railroad favors, secret combinations, bribery, intimidation and lawless arrogance.
Many other interesting cases might be given. The Southern Pacific Railway Company, for instance, owns nearly all of the railways of California, and enjoys at the present time almost a complete monopoly of the transportation business of that State and much more of the Pacific Coast. Perhaps no set of managers would be more considerate of the people's rights in the absence of legal restraint than those in charge of this company, yet there is not a business man on the Pacific Coast who comes in contact with this company who does not realize and feel the power of its iron hand, unless it be those who for various reasons are recipients of its special favors. It has become notorious that the legislature, Board of Railroad Commissioners and some of the judges of the courts of that State are as servile to the demands of this railway company as are its own employes.
The railway company is a closely organized body of shrewd, active men, while those who furnish business for it are not organized, and they will never be able to properly protect their own interests until they control the machinery of their State government.
As has already been shown, railroad enterprise met with comparatively little opposition in the United States, for, as compared with the interests certain to be benefited by the introduction of the new mode of transportation, those likely to be injured by it were insignificant. It is true, the innate conservatism of man even here recorded its objections to the innovation. It viewed with distrust the new power which threatened to revolutionize well-established systems of transportation and time-honored customs and to force upon the people economic factors the exact nature and value of which could only be ascertained by practical tests. But the progressive portion of the community was so decidedly predominant that these protests were soon drowned in the general demand for improved facilities of transportation. The farmer who had to haul his produce a great distance to reach a market appreciated the advantages to be derived from the location of a railroad station nearer home. The manufacturer who heretofore had, had a very limited territory for the sale of his products well realized that he could with the aid of a railroad enlarge his territory and increase his output, and with it his profits. The pioneer merchant found that he could no longer compete with former rivals in adjoining towns, since the iron horse had reached them and lowered their freights, and he also became a convert to the new order of things and clamored loud for railroad facilities. Railroads seemed the panacea for industrial and commercial ills, and every inducement was held out and every sacrifice made by communities to become participants of their blessings. So great was the estimate of the conveniences afforded by them and so strongly was public opinion prejudiced in their favor that it is no exaggeration to say that railroad companies as a rule were permitted to prepare their own charters, and that these charters almost invariably received legislative sanction.
To such an extent was the public mind prepossessed in favor of railroads that any legislator who would have been instrumental in delaying the granting of a railroad charter for the purpose of perfecting it, to protect the people against possible abuses, would have been denounced as a short-sighted stickler and obstructor of public improvements. Anxious for railroad facilities, the people were deaf to the warnings of history. Their liberality knew no bounds. National, State and county aid was freely extended to new railroad enterprises. Communities taxed themselves heavily for their benefit, and municipalities and individuals vied with each other in donating money, rights of way and station buildings. This was especially true of the West, whose undeveloped resources had most to gain by railroad extension. So large were the public and private donations in several of the Western States that their value was equal to one-fifth of the total cost of all the roads constructed. To still more encourage promoters of railroad enterprises, general incorporation laws were passed which permitted companies to be formed and roads to be built practically without State supervision. In their admiration for the bright side of the picture, the people entirely overlooked the shady side.
Besides this, there was virtually an absence of all law regulating the operation of railroads. It was, under these circumstances, not strange that abuses early crept into railroad management which, long tolerated by the people and unchecked and even encouraged by public officers, finally assumed such proportions as to threaten the very foundation of free government. Great discoveries that add rapidly to the wealth of a country tend to overthrow a settled condition of things, and organized capital and power, if not restrained by wholesome laws and public watchfulness, will ever take advantage of the unorganized masses. The people of those regions which the railroad stimulus had caused to be settled thrived for years so well upon a virgin soil that they gladly divided their surplus with the railroad companies. They looked upon the railroads as the source of their prosperity and upon railroad managers as high-minded philanthropists and public benefactors, with whom to quarrel would be an act of sordid ingratitude, and they paid but little attention to the means employed by them to exact an undue share of their earnings. Railroad men did whatever they could to foster through their emissaries this misplaced adoration. They posed before the public as the rightful heirs of the laurels of Watt and Stephenson, insisting that their genius, capital and enterprise had built up vast cities and opened for settlement and civilization the boundless prairies of the West. These claims have been persistently repeated by railroad men, though they are so preposterous that they scarcely deserve refutation. The railroad, gradually developed by active minds of the past, and greatly improved by the inventions of hundreds of men in the humbler walks of life, is the common inheritance of all mankind, though no class of people have derived greater benefits from it than railroad constructors, managers and manipulators. Railroad managers are no more entitled to the special gratitude of the public for dispensing railroad transportation at much more than remunerative rates than is the Western Union monopoly for maintaining among us an expensive and inefficient telegraph service. No one believes that the disbanding of the Western Union would leave us long without telegraphic communication. In like manner railroads will be built whenever and wherever they promise to be profitable. If one company does not take advantage of the opportunities offered, another will. That large cities have been built up by the railroads is true, but it is equally true that these cities by their commerce and manufactures administer to the prosperity of the railroads as much as the railroads administer to theirs. Commercial centers in days gone by existed without railroads, but railroads could not long exist without the stimulating influence of these busy marts of trade. The same argument applies with still greater force to the agricultural sections of our country, especially the great Northwest. The dry-goods merchant might as well boast of having clad the public as the railroad manager of having built up farming communities by selling to them transportation.
And yet the American people have never ceased to be mindful of the conveniences afforded to them by this modern mode of transportation. On the contrary, they have been but too prone to credit railroad men with being benefactors, when they were but beneficiaries, and this liberality of spirit made them overlook, or at least tolerate, the abuses which grew proportionately with the wealth and power of the companies.
The first railroad acts of England had contemplated to make the roads highways, like turnpikes and canals. These roads were established by the power of eminent domain. Companies were empowered to build and maintain them and to reimburse themselves by the collection of fixed tolls. Had the owners of the roads from the beginning been deprived of the privilege of becoming carriers over their own lines, the system might have so adjusted itself as to become entirely practicable; but as they were allowed to compete with other carriers in the transportation of passengers and merchandise, they were soon able to demonstrate, at least to the satisfaction of Parliament, that the use of the track by different carriers was impracticable and unsafe. A number of circumstances combined to aid the railroad companies in their efforts to monopolize the trade on their lines. In the first place, when the early railroad charters were granted, but few persons had any conception of the enormous growth of commerce which was destined to follow everywhere the introduction of railways. The tolls as fixed in the charters soon yielded an income out of proportion to the cost of the construction and maintenance of the roads. Their large margins of profit enabled the owners of the roads to transport goods at lower rates than other carriers and to thus compel the latter to abandon their business. Another defect of the original charters worked greatly to the disadvantage of independent carriers. They contained no provision as to the use of terminal facilities. The railroad companies claimed that these facilities were not affected by the public franchise and were therefore their personal property. This placed independent carriers at a great disadvantage and made in itself competition on a large scale impossible. These carriers were thus at the mercy of the railroad companies for the transportation of their cars, and the companies never permitted their business to become lucrative enough to induce many to engage in it. It soon became apparent that under the charters granted to the railroad companies such competition as existed on turnpikes and canals was out of the question on their roads. In England the great abundance of water-ways exercised for many years a wholesome control over the rates of railway companies, until these companies, greatly annoyed by such restraint, absorbed many of the larger canals by purchase and made them tributary to their systems. These companies have also acquired complete control over many important harbors.
In the United States the people depended from the beginning of the railroad era on free competition for the regulation of railroad charges. This desire to maintain free competition led to the adoption of general incorporation acts, it being quite generally believed that such competition as obtains between merchants, manufacturers and mechanics was possible among railroads and would, when allowed to be operative, regulate prices and prevent abuses. The remedy was applied freely throughout the country, but for once it did not prove successful. Stephenson's saying, that where combination was possible competition was impossible, was here fully verified. The great ingenuity of the class of men usually engaged in railroad enterprises succeeded in thwarting this policy of commercial freedom. The opportunities for those in control of railroads to operate them in their own interest, regardless of the interests of their patrons or stockholders, were so great that men of a speculative turn of mind were attracted to this business, which indeed soon proved a most productive field for them. One road after another fell into the control of men who had learned rapidly the methods employed to make large fortunes in a short time.
As the roads multiplied, transportation abuses increased. A considerable number of people early favored State control of railroads as the best means of regulating transportation, but a majority looked upon the existing abuses as being merely incidental to the formative period, and hoped that with a greater expansion of the railroad system they would correct themselves. And this doctrine was industriously disseminated by railroad managers and their allies. They lost no opportunity to impress upon the people that State regulation was an undue interference with private business and that such a policy would soon react against those who hoped to profit by it, inasmuch as it would prevent the building of new roads and would thus hinder, rather than aid, in bringing about the right solution of the railway question, viz., regulation by competition. They contended, in short, that State regulation would be destructive to railroads as well as to every other class of property.
Railroad sophistry for many years succeeded in preventing the masses from realizing that an increased supply of transportation does not necessarily lower its price, or, in other words, that railroad abuses do not necessarily correct themselves through the influence of competition. A large capital is required to build and maintain a railroad, which must necessarily be managed by a few persons. Besides this, the construction of a railroad practically banishes at once from its field all other means of land transportation. The railroad has thus a practical monopoly within its territory, and its managers, if left to follow their instinct, will despotically control all the business tributary to it, with unlimited power to build up and tear down, to punish its enemies and to reward its friends.
It is not true that State control checks railroad building. While it may prevent the construction of useless lines and discourage speculation, it will encourage the building of roads for which there is a legitimate demand. Stockholders as a whole do not participate in the management of the roads and do not profit by railroad abuses, the origin of which may almost invariably be traced to selfish designs on the part of a few entrusted with the management of the property. Where through wise legislation these abuses are prevented, the roads are managed in the interest of all the stockholders, develop business and enjoy lasting prosperity.
It may be laid down as a general rule that the policy which best subserves the interests of the patrons of a road is always the best policy for its owners. Injustice to a railroad will interfere with its usefulness; injustice to shippers depresses production and consumption; and in either case both the road and its patrons will suffer. State control is therefore as much needed in the interest of the owners of railroads as in the interest of their patrons. What should be the nature of such control will be discussed hereafter. A full understanding of the question at issue, however, makes necessary an inquiry into the various abuses which unrestrained railroad management of the past has developed. Perhaps no better presentation of the evils and abuses of railroads and their consequences can be found than that contained in the report of the Senate Committee on Interstate Commerce, submitted by Senator Cullom, in 1886. This report charges:
1. That local rates are unreasonably high, as compared with through rates.
2. That local and through rates are unreasonably high at non-competing points, either from the absence of competition or in consequence of pooling agreements that restrict its operation.
3. That rates are established without apparent regard to the actual cost of the service performed, and are based largely on "what the traffic will bear."
4. That unjustifiable discriminations are constantly made between individuals in the rates charged for like service under similar circumstances.
5. That improper discriminations are constantly made between articles of freight and branches of business of a like character, and between different quantities of the same class of freight.
6. That unreasonable discriminations are made between localities similarly situated.
7. That the effect of the prevailing policy of railroad management is, by an elaborate system of secret special rates, rebates, drawbacks and concessions, to foster monopoly, to enrich favored shippers, and to prevent free competition in many lines of trade in which the item of transportation is an important factor.
8. That such favoritism and secrecy introduce an element of uncertainty into legitimate business that greatly retards the development of our industries and commerce.
9. That the secret cutting of rates and the sudden fluctuations that constantly take place are demoralizing to all business except that of a purely speculative character, and frequently occasion great injustice and heavy losses.
10. That, in the absence of national and uniform legislation, the railroads are able by various devices to avoid their responsibility as carriers, especially on shipments over more than one road, or from one State to another, and that shippers find great difficulty in recovering damages for the loss of property or for injury therefor.
11. That railroads refuse to be bound by their own contracts, and arbitrarily collect large sums in the shape of overcharges in addition to the rates agreed upon at the time of shipment.
12. That railroads often refuse to recognize or to be responsible for the acts of dishonest agents acting under their authority.
13. That the common law fails to afford a remedy for such grievances, and that in cases of dispute the shipper is compelled to submit to the decision of the railroad manager or pool commissioner, or run the risk of incurring further losses by greater discriminations.
14. That the differences, in the classifications in use in various parts of the country, and sometimes for shipments over the same roads in different directions, are a fruitful source of misunderstandings, and are often made a means of extortion.
15. That a privileged class is created by the granting of passes, and that the cost of the passenger service is largely increased by the extent of this abuse.
16. That the capitalization and bonded indebtedness of the roads largely exceed the actual cost of their construction or their present value, and that unreasonable rates are charged in the effort to pay dividends on watered stock and interest on bonds improperly issued.
17. That railroad corporations have improperly engaged in lines of business entirely distinct from that of transportation, and that undue advantages have been afforded to business enterprises where railroad officials were interested.
18. That the management of the railroad business is extravagant and wasteful, and that a needless tax is imposed upon the shipping and traveling public by the necessary expenditure of large sums in the maintenance of a costly force of agents engaged in a reckless strife for competitive business.
Under the operation of the Interstate Commerce Law some of these evils have, so far at least as interstate commerce is concerned, disappeared, and others have been considerably mitigated. It cannot be expected, however, that a bad system of railroad management, to the development of which the ingenuity of railroad managers has contributed for two generations, could be entirely reformed in a few years. It is a comparatively easy task for shrewd and unscrupulous men, assisted by able counsel and unlimited wealth, to evade the spirit of the law and to obey its letter, or to violate even both its letter and spirit, and escape punishment by making it impossible for the State to obtain proof of their guilt.
It is a humiliating spectacle to see the self-debased railroad officials confessing their own guilt by refusing to testify before the Interstate Commerce Commission on the ground that they would thereby criminate themselves. Congress should have sufficient respect for this commission and for itself to provide a way to punish such recusant witnesses who are willing to degrade themselves in so base a manner. Whether the law will eventually be respected by all depends upon the vigilance and courage of the people.
That our railroad legislation is not yet perfect even its friends will admit; and as under a free government the demand of an enlightened public opinion is the first step toward the enactment of a law, it behooves the intelligent citizen to study the various railroad problems and to then exert his influence toward bringing about such a solution of them as justice and wisdom demand.
In discussing the various evils of railroad management, the author will commence with and dwell more particularly upon those abuses which maybe said to be the cardinal ones, viz., discrimination, extortion, combinations and stock and bond inflation. When these are once effectually eradicated, other abuses of railroad management which have been the subject of public complaint will not long survive them.
One of the strongest arguments that could be adduced by the founders of the American Constitution in favor of the establishment of a more perfect union was that the inequality of taxes placed upon commerce by the various States was a serious obstacle to its free development. Much as the individual States dislike to give up a part of their sovereignty to a central or national power, the demand for a common and uniform system of commercial taxation was so great that they were forced to yield and ratify the new Constitution. Our forefathers thus considered it a dangerous policy to permit a single State to lay any imposts upon the commercial commodities which passed over its borders. They were rightly of the opinion that industrial and commercial liberty was as essential to the welfare of the nation as political freedom and that therefore interstate commerce should not be hemmed in or controlled within State lines, but that the power to regulate it should be lodged in the supreme legislative authority of the nation, the Congress of the United States. For over half a century Congress alone exercised the power thus conferred upon it by the people. After the introduction of railroads, however, their managers gradually assumed the right to regulate the commerce of the country in their own interest through the adoption of arbitrary freight tariffs. Freight charges are practically a tax which follows the commodity from the producer to the consumer. An arbitrary and unjust charge is therefore an arbitrary and unjust tax imposed upon the public without its consent. It is a well-established rule of society that laws should be equitable and just to all citizens. Congress never assumed the role of Providence by attempting to equalize those differences among individuals which superior intellect, greater industry and a thousand other uncontrollable forces have ever created and will ever create. It has been reserved to railroad managers to demonstrate to the public that a power has been allowed to grow up which has assumed the right to counteract the dispensations of Providence, to enrich the slothful, to impoverish the industrious, to curtail the profits of remunerative industries and revive by bounties those languishing for want of vitality, to humble proud and self-reliant marts of trade and to build up cities in the desert. It will scarcely be claimed even by railroad managers that their policy of thus arbitrarily regulating commerce originated in philanthropic motives. They are forced to admit that it grew out of an attempt to increase the income of railroads by the extension of favors to naturally weak enterprises and to recoup by overtaxing stronger ones.
The practical operation of this system soon showed to railroad managers their power and to the patrons of railroads their dependence upon those who dispensed railroad favors. The former soon discovered that their power might be used to further their private interests as well as those of the roads, and unscrupulous patrons were not slow to offer considerations for favors which they coveted. When such favors were once granted by the officials of one road, rival roads would grant similar ones in self-protection. Thus this vicious system grew until the payment of a regular tariff rate was rather the exception than the rule, and special rates became an indispensable condition of success in business.
We may distinguish three classes of railroad discriminations, viz.:
1. Those which affect certain individuals.
2. Those which affect certain localities.
3. Those which affect certain branches of business.
Discrimination between individuals is the most objectionable, because it is the most demoralizing of all. Where such discrimination obtains, every shipper is in the power of the railroad corporation. It makes of independent citizens of a free country fawning parasites and obsequious sycophants who accept favors from railroad managers and in return do their bidding, however humiliating this may be. The shipper, realizing that the manager's displeasure or good will toward him finds practical expression in his daily freight bills, finally loses, like the serf, all self-esteem in his efforts to propitiate an overbearing master. He is intimidated to such an extent that he never speaks openly of existing abuses, lest he lose the special rates which have been given him, or, if he is not a participant of such privileges, lest additional favors be given to his rivals and they be thus enabled to crush him. Intimidation of shippers prevailed to such an extent previous to the enactment of the Interstate Commerce Law that when, in 1879, the special committee on railroads appointed by the legislature of New York invited all persons having grievances against railroads to come before them to testify, not one shipper testified voluntarily. On the contrary, they all insisted upon being subpœnaed, hoping that the railroad managers would not hold them responsible for any statement which they might be compelled to make under such circumstances. The report of that committee stated that the number of special contracts in force within the period of one year on the New York Central and Hudson River Railroad alone was estimated by the railroad people at 6,000. Mr. Depew, when he made the statement: "In territories comparatively new, and with little responsibility on the part of the managers to distant owners, they became in many cases very arbitrary and exercised favoritism and discriminations, which led to popular indignation and legislation," had probably not heard of this. The committee's report further stated that these special rates conformed to no system and varied without rule, that every application for a special rate was judged by itself and with reference to its own peculiar circumstances, and that it depended upon the judgment, or rather caprice, of the officer to whom the application was made, whether and to what extent a special rate should be granted. The reductions made to privileged merchants often amounted to more than what would be a fair profit to the dealer on the commodities shipped. The privileged dealer was thus enabled to undersell his rivals and eventually force them out of business or into bankruptcy. It was not at all uncommon for railroad companies to allow discounts amounting to 50, 60, 70 and even 80 per cent. of the regular rates. The New York Central gave a Utica dry-goods merchant a special rate of 9 cents while the regular rate was 33 cents on first-class freights. The lowest special rate granted at Syracuse was as low as 20 per cent. of the regular tariff rate on first-class goods. David Dows & Company and Jesse Hoyt & Company, by means of a grain rate from 2-1/2 to 5 cents lower than those given to other firms, were enabled to control in the winter of 1877 the grain trade of New York. The railroad even extended its fostering aid to A. T. Stewart & Co., giving them a special rate "to build up and develop their business." The testimony given by Mr. Goodman, assistant general freight agent of the New York Central, in reference to the principle by which he was guided in granting special rates, is of sufficient interest to be given a place here:
Question. You made the rate for A. T. Stewart & Company? Answer. Yes, sir.
Q. Was that to build up and develop their business? A. Yes, sir.
Q. That was the object? A. That was one of the objects.
Q. January 11th, 1879? A. Yes, sir.
Q. You thought that business was not yet sufficiently built up and developed? A. No, sir; not the manufacturing part of it.
Q. How long had the factories of A. T. Stewart & Company been in existence? A. The one at Duchess Junction about three years, I think; it isn't completed yet.
Q. And they were languishing and suffering? A. To a great extent; yes, sir.
Q. And you acted as a fostering mother to A. T. Stewart & Company to build it up? A. Yes, sir; I added my mite to develop their traffic; we wanted to carry the freight; boats might have carried it in the summer.
Q. Do you know anything of G. C. Buell & Company? A. Yes, sir.
Q. You wanted to develop their business? A. Yes, sir; they are at Rochester—wholesale dealers.
Q. Do you know H. S. Ballou, of Rochester? A. I do not.
Q. He seems to be a grocer there? A. A small concern, perhaps.
Q. Small concerns are not worth developing, according to your opinion? A. Our tariff rates are low enough for them at Rochester.
Q. That is to say, a small concern ought to pay 40, 30, 25 and 20, as against a large concern, 13; that is your rule? A. Well, if he is a grocer, most of his business is fourth-class freight.
Q. And he ought to pay 20, as against 13? A. Yes, sir.
Q. That small man has no right to develop? A. He has the same chance that the other man has.
Q. At 20 against 13? A. Oh, yes.
Q. Do you call that the same chance? A. About the same chance, yes, sir.
Q. You consider it the same chance? A. Yes, sir.
Many reasons were assigned by railroad men in justification of their practices. It was claimed that special rates were given to regular shippers, but it has been proved that not all regular shippers had special rates, and that persons who made only single shipments were often fortunate enough to obtain special favors. It was further claimed that special rates were given to those who, starting out new in business or developing new enterprises, needed aid and encouragement. But it was shown on the other hand that the aid and encouragement thus given to some bankrupted others, and in the end deprived the companies of more business than their policy of discrimination brought them. Railroad managers also argued that they could afford to make lower rates on large shipments than on small ones for the same reasons that the wholesale merchant can sell his goods for less than the retailer. But while this may be a good reason why rates on car-load shipments should be lower than rates on shipments in less than car-load lots, it is certainly no good reason why five car-loads belonging to one shipper should be transported the same distance for less than five carloads belonging to five shippers. In the case of local shipments the car is scarcely ever loaded to its full capacity; one shipment after another is taken from it as the train moves along, and the car perhaps reaches its final destination nearly, if not entirely, empty. The terminal charges are here also largely increased, and it is but just that the shipper should pay the additional cost of carrying and handling the goods. The case is entirely different when the railroad company carries five full carloads from one station of its line to another. Whether they have been loaded by one or five persons, whether they are consigned to one or five persons, matters little to the railroad company. It merely transports the cars, and in either case its responsibility and its services are the same. The car-load must therefore be accepted and is now generally accepted by the best railroad men as the unit of wholesale shipments, and any discrimination made in favor of large wholesale shippers is arbitrary and unjust. In the shipment of some commodities, such as wheat, flour and coal, a small advantage in rates is sufficient to enable the favored shipper to "freeze out" all competitors. It is certainly not to the interest of any railroad company to pursue such a policy; for by driving small establishments out of the business it encourages monopoly, which almost invariably enhances prices and decreases consumption. The railroad thus suffers in common with the public the consequences of its short-sighted policy. That even railroad managers realize that these practices cannot be defended upon any principle of justice or equity is apparent from the fact that one of the never-varying conditions of special rates is that they be kept secret. A specimen of a special rate agreement which was placed before the New York investigating committee is here presented to the reader: