The route of the Central Pacific presented to the engineer no great obstacles between Ogden and the State line of California, the only elevation of any note to be surmounted being the Humboldt Mountains in Nevada. Their highest point, Humboldt Wells, is 221 miles west of Ogden, and has an elevation of 5,650 feet above the level of the sea, while that of Ogden is 4,320 feet. Upon an average the grades of this portion of the road do not differ from those found in the Mississippi Valley. The portion of the Central Pacific Railroad which traverses the Sierra Nevada is the most expensive of the whole line, but the cost of construction did not, even on this division, exceed the amount contributed for it by the Federal Government; for the statement is made upon good authority that a few of the leading promoters of the road built the first western section of twenty miles with their own capital, of less than $200,000, and a loan from the city of Sacramento and Placer County, amounting to $550,000, and then drew $848,000 Government subsidy, or more than enough to build the second section and draw another installment of the subsidy; and that they repeated the operation until the whole line was completed. These men were in such haste to realize the profits which their undertaking promised them that they did not even take sufficient time to make a proper survey of their line. Had they done so, a great saving, both in the construction and in the subsequent operation of the road, might have been effected. It is now well known that a route could have been found through the Sierra Nevada Mountains, not far distant from the route chosen, which would have saved 800 feet in elevation and at least 25 per cent. in the expense of grading.

It is certainly safe to say that if less than forty thousand dollars a mile was sufficient to construct the road through the Sierra Nevadas the Federal contribution of $50,000,000 for the entire line, from Omaha to San Francisco, left, after the completion, a respectable surplus, either to the companies or those of their members who had the construction contract, and that the $75,000,000 of capital stock and the $55,000,000 of first mortgage bonds which the two companies issued were a gigantic dividend to the stockholders, for which, practically, no consideration was given.

The companies might well have been satisfied with the Government's generosity, but their success in imposing upon Congress stimulated their greed. The act of 1864 provided that the charge for Government transportation over these roads should be applied to the liquidation of its bonds, and that after the completion of the lines five per cent. of their net earnings should likewise be so applied. When the Secretary of the Treasury, under the law, refused to pay them the amount earned by Government transportation, and in addition to this demanded the five per cent. of their net earnings in liquidation of their debt, the companies applied to Congress to again amend their charters so as to relieve them for the time being from any direct payment of either principal or interest of the Government bonds, and to make it the duty of the Secretary of the Treasury to pay to the companies in money one-half of the compensation allowed to them by law for services performed for the Government. And again Congress responded to their demands, granting them, by a rider to the army appropriation bill, passed March 3, 1871, all the relief asked for. Owing to the policy of the managers of the Pacific line to pay as little of the interest on the Government subsidy debt as is absolutely necessary to prevent foreclosure proceedings, the unpaid interest has accumulated until it now almost equals the amount of the original indebtedness. The last report of the Commissioner of Railroads shows that the total indebtedness, principal and interest, to the United States of the Pacific railroad companies, was $114,490,000 on July 1, 1892. The Commissioner seems to be of the opinion that the Union Pacific Company will not be able to pay the subsidy bonds at maturity, and he urges that some step be taken in the matter by Congress, whether it be to extend the loan, which will mature within the next six years, or to sell the road. The managers of the Pacific roads and their friends ask an extension of the Government subsidy bonds for fifty years, and a reduction of interest from 6 to 2 per cent. If Congress continues to be servile to these interests, the Pacific railroad lobby will secure just such legislation as they demand.

At the time the Pacific roads were built the people of the United States had no adequate knowledge of the topography of the Territories, and the promoters of the road for a while found it a difficult task to convince capitalists that the investment would be a safe one. That they knew the value of the projected road was shown by the contest between the Central Pacific and the Union Pacific for mileage. For a distance of over 200 miles the two companies graded roads side by side in contest for the Government subsidy.

The promoters were even disappointed in the cost of the roads, as Mr. Sidney Dillon states in an article published in the August number of Scribner's Magazine, 1892, in which he says:

The United States Government could parallel to-day the line of either road for less than the amount of its first mortgage bonds, and its subsidy bonds are therefore nearly worthless.

Mr. Clews, in his "Twenty-Eight Years in Wall Street," says:

It may be admitted that the Pacific roads, even at an extravagant cost, have proved a good investment for the country, yet their history reflects severely on the statesmanship of those members of Congress whose duty it was to properly protect the interests of the nation at that time. They were unequal to their task.

The Great Northern Railway Company has just completed its road to the Pacific Coast. Its line is very direct, and it has unusually light curvature and low grades, which will enable it to be operated more cheaply than any Pacific line yet constructed. Much of its route is through a rich and productive country, insuring to it a heavy local business.

The following statistics concerning it are given in the Railway Age:

A comparison of these figures with those corresponding of other transcontinental lines is instructive, and is commended to Congressmen who have to deal with the Union Pacific and Central Pacific questions.

Stock and bond inflation, it may confidently be asserted, has created from five to six thousand millions of dollars of fictitious railroad capital. In 1890 the average liabilities of the railroads in the United States, including the capital stock and the funded and unfunded debt, were $63,600 per mile. According to Mr. Poor's estimate of the average cost of American railroads per mile, more than 50 per cent. of this vast sum is pure water. But, as has been stated before, Mr. Poor is partial to the railroad interest, and his estimate of $30,000 a mile is too high for the time at which it was made. Furthermore, railroad building has since then been materially cheapened. Tens of thousands of miles of road have been built in recent years that did not cost to exceed $10,000 a mile. Very recently the Union Pacific Railroad Company proved, before the Board of Equalization at Salt Lake City, by the testimony of engineers, that the average cost per mile of the Utah Central line was only $7,298.20, itemized as follows:

In a recent article Mr. C. Wood Davis states that "many auxiliary lines have been built at costs ranging from $8,000 to $15,000 per mile, and capitalized at two, three, four, and even five times their cost, as in the case of the 107 miles of the Kansas Midland, costing, including a small equipment, but $10,200 per mile, of which 30 per cent. was furnished by the municipalities along its line. Yet, with construction profits and other devices, this road shows a capitalization of $53,000 per mile."

And that "the Missouri Pacific line from Eldora to McPherson, Kansas, a comparatively expensive prairie road, being located across the line of drainage, cost much less than $10,000 per mile, as have thousands of miles of other prairie roads."

It is safe to say that $25,000 is a liberal estimate of the average cost per mile of American roads to the stock-and bondholders, and that their capitalization represents $38,000 of water per mile. The total net earnings of the railroads of the country were $341,666,639 in 1890, and $356,227,883 in 1891, upon an actual investment of only about $4,250,000,000. This is a return of about 8-1/2 per cent. and shows the force of Mr. Poor's statement that, if the water were squeezed out of railroad securities, no better-paying investment could be found in the country.

We often see references to the fact that no dividends are paid upon a large portion of railroad stocks, but there is no reason why dividends should be paid upon many of them, as they represent no capital whatever that has gone into the road. It is probable that not to exceed ten cents on the dollar upon an average was originally paid for these stocks, and the $80,000,000 distributed annually as dividends upon them does not vary much from fifteen to twenty-five per cent. upon the amount actually invested in them.

CHAPTER VII.

COMBINATIONS.

It is the favorite argument of railroad men, and the writer must confess that he himself formerly believed, that if all legal restraints were removed from railroad business, the laws of trade would regulate it more successfully and more satisfactorily, both to the railroad companies and their patrons, than the wisest statutes could ever regulate it. To give force to their argument, they cite the old Democratic maxim that that State is governed best which is ruled the least. They also assert that it is the province of the State to guarantee to each of its citizens industrial freedom; to permit him to transact any legitimate business according to his best judgment; to buy and to sell where and at what price he pleases; in short, to earn without restriction the reward of his intelligence and his industry. They further contend that under a free government the law of supply and demand should be allowed free sway, and that he who buys or sells transportation should not be hampered in his transactions any more than the grocer and his customer.

The reply to this is that, while the grocer is a natural person, the railroad company is an artificial person, and that, while the business of the former is purely private, that of the latter is quasi-public. The grocer must rely solely upon his personal rights and private resources, but the railroad company accepts from the State the franchises which enable it to do business. And yet, if the public had any assurance that the laws of trade would regulate both kinds of business alike, it is not likely that the State would distinguish between the two. They claim that their business is like other private business, and therefore they should be let alone; that competition can be relied upon to correct abuses; and where competition does actually exist they forget, and then claim that their business is not like other private business, and they should be allowed to make pools and combinations, because in their business competition is ruinous. Experience has certainly demonstrated that competition is only possible where combination is impossible. Where the same commodity is supplied by a large number of individuals, there is but little danger for the public from those who supply it, for an agreement among many cannot easily be effected; and even if an understanding could be reached, it would not long be satisfactory to all parties. Disagreements would arise which would end in the dissolution of the combination. Where, however, the number of competitors is small, agreements can be easily effected and successfully maintained.

It is doubtful whether there is at present any interest in the commercial world which has a greater tendency to monopoly and combination than the railroad interest. There are in the United States some 40,000 railroad stations. Not more than 4,000 of these are junctions of two or more roads. At 90 per cent. of these stations shippers are therefore confined to one line of railroad, and are, in absence of State regulation, compelled to pay for transportation whatever price the companies may be disposed to charge, subject only to such restrictions as the proximity of competing points may impose. If competition obtained at all points where two or more roads meet, many railroad companies could not afford to charge excessive rates at non-competitive points along their lines of road, for such a policy would slowly but surely drive a large volume of their legitimate business to rival roads, to whose interest it would be to encourage by every means in their power such diversion of traffic. Railroads early recognized this fact and took steps to enable each line to control its local business. The first combinations among railroad companies to control prices at competitive points were rather crude; in fact, much cruder than the first Granger legislation. They were simple agreements among the various roads touching a common point to maintain certain fixed rates. But while each road was anxious to have the rates agreed upon maintained by all of its rivals, it cared but little about maintaining its own good faith, and it improved every opportunity to get business at reduced rates so long as it could reasonably hope to escape detection. As soon as any of the competing roads, through the falling-off of its business, became convinced that it was the victim of overreaching rivals, it retaliated by offering still lower rates to close-tongued shippers. This tricky rivalry would be continued until the animosity engendered by it would lead to an open rupture, and what railroad men are pleased to term a rate war would follow. As the schedule rates had before been unreasonably high, so they became now unreasonably low. Hostilities would be continued until all belligerents became exhausted and manifested a disposition to negotiate a treaty of peace. The former high rates would then be restored; the compact was carried out for a short time, to be again violated and finally annulled. These rate agreements were in vogue in New England before the War of the Rebellion and gradually found their way to the Middle States and the West. Wherever they were tried they were violated, until even among the most unsophisticated of freight agents a rate agreement was looked upon as a farce.

The statement is often made by railroad managers that excesses in railroad competition are the result of the peculiar conditions of their business, which has heavy fixed charges on one hand and a fickle patronage on the other; that the uncertainty of through business compels them to rely upon the local business for such revenue as is necessary to meet these fixed charges; and that, inasmuch as their trains must run, and any through freight hauled by them is so much business taken from the enemy, they can better afford to take it at any price than to have one of their competitors take it.

It is difficult to see why this reasoning should not be applied to other branches of business; for instance, to milling. The mill-owner, like the railroad company, has heavy fixed charges. He has to earn the interest on his capital, he has to keep his mill in repair, he now and then has to meet the demands of the times and purchase improved appliances, and he has to keep a certain number of employes, whether business is brisk or slack. He might, therefore, if he saw fit to employ the logic of railroad managers, earn revenue enough to meet his fixed charges from the business which his regular customers give him, and then do any business coming from beyond this circle at any price rather than surrender it to a rival.

It will readily be conceded that any enterprise conducted on such principles could, at the best, flourish only temporarily, for it would soon encounter difficulties from two sources. Its local customers, thus discriminated against, would withdraw their patronage, while its competitors, finding their territory encroached upon, would, in self-defense, offer still better terms to the public to regain their lost customers. Such ruinous competition, if long persisted in, must necessarily cripple, if it does not bankrupt, a majority of those who engage in it. It is fortunately as rare in industrial and commercial circles as it is common among public carriers.

This difference can easily be accounted for. Where there are a large number of competitors the prices of the commodities supplied by them are leveled down until they reach a point where they will afford only a reasonable margin of profit, and beyond which they will cease to be profitable, and will therefore cease to be supplied until the equilibrium is again established. Where, however, the number of competitors is small, the price of the commodities supplied by them will, by agreement, for a time at least, be maintained at a point where it affords considerable more than a reasonable profit. Here the large gain presents to the various competitors such a temptation to outstrip their rivals and increase their business at the expense of good faith, that but few, if any, of them will, in the long run, resist it. The tendency to underbid rivals will always be strong where profits are large, and it may safely be asserted that efforts to maintain, through combinations, excessive rates are the most fruitful source of ruinous competition.

In time railroad managers became convinced that, unless it was possible to radically reform railroad ethics, rate agreements could never be relied upon for the maintenance of excessive rates at competing points. The combined roads found it an easy matter to agree upon excessive rates, but were powerless to enforce them. Experience convinced their managers that to make their tariffs effective it was necessary to deprive individual roads of the power or the inducement to cut below the agreed rates. Their ingenuity in time developed a system which promised to remove from individual roads every temptation to take business at less than schedule prices. This device consists in a division of railroad business and is commonly called a pool. There are various ways in which such a division is made. Either the traffic is divided among the various companies meeting at a common point, or each road is allowed to carry all freights that it may receive, and then the earnings of the different roads are divided, each road being paid the actual cost of such service as it has performed. There is still a third pooling arrangement, consisting in a division of territory, but this has been found less satisfactory and is now but rarely resorted to.

It is said that the first regular pool organized in the United States was the Chicago-Omaha pool, formed in 1870 by the Chicago, Burlington and Quincy, the Chicago, Rock Island and Pacific, and the Chicago and Northwestern railroad companies, then the only three lines connecting the cities of Chicago and Omaha. This pool, which was subsequently joined by other lines, made an equal division of the traffic, and was so well organized that it lasted fourteen years "without a break." The abuses practiced by the companies belonging to this pool were one of the chief causes of the Granger movement in Iowa. It is indeed doubtful whether any other railroad combination ever maintained itself longer or pursued its ends with greater pertinacity than this pool. Another pool of national notoriety was the Southern Railway and Steamship Association, which was organized, though at first under a different name, in the State of Georgia, in 1875. It was probably the first money pool formed in the United States. Each member was awarded a certain percentage of the total business between the various competitive points along its line. If a company carried more than its share, it was compelled to turn over the receipts from such additional traffic to its rivals, which paid it a nominal price for carriage. This allowance was always made so low that there was no inducement for any company to seek to carry more than its allotment. The pool had its own executive, legislative and judicial departments, and it enforced its decrees with an iron hand. It maintained a strong centralized government, and rebellious members had but little mercy to expect from it. It provided that if any officer or representative of any company should authorize or promise, directly or indirectly, any variation from established tariffs, he should be discharged from the service, with the reason stated. The strong sentiment which we to-day find in the South in favor of State control of railways is the direct result of the many evils which this powerful pool introduced into the railway business of that section of the country.

Other pools followed, as the Southwestern Association, organized in 1876, to control the traffic between Chicago and St. Louis, and the Minnesota and the Colorado pools. Within a few years railroad pools covered the whole country. All pursued the same object, viz., the control of rates at competitive points, which enabled the companies to maintain excessive schedule rates at local points.

Between 1875 and 1880 the pooling system rapidly spread all over the Union. Wherever competition promised to regulate rates by the application of the law of supply and demand, the pool was resorted to as the never-failing remedy to preserve dividends on watered stock. As long as lake and canal navigation controlled the carriage of heavy freights between Chicago and New York by means of rates so low that railroads found it, or at least thought it, impossible to compete with them in the transportation of agricultural products during the greater part of the year, railroad pools between Chicago and New York could not be successfully maintained. In 1873 the railroads transported only about 30 per cent. of this kind of freight from the West to Eastern ports.

Owing, however, to the rapid decrease of the cost of transportation, railroad companies from this time on were enabled to encroach rapidly upon the business of water routes, so that in 1876 they carried over 52 per cent. of the entire volume of agricultural products that were moved from the West to the East. As long as these products were carried almost entirely by water from lake ports to the East, New York, as the terminus of this route, enjoyed decided advantages over the other Atlantic ports. When, however, the railroads commenced to successfully compete with the water routes in the transportation of these commodities, a considerable share of this business was diverted to Boston, Philadelphia and Baltimore, and it soon became apparent that these ports, in some respects, enjoyed advantages for the export trade not possessed by New York. It was, therefore, not surprising that the business men of these cities, together with the railroads terminating in them, made every effort to come in for their share of the traffic which was drifting away from New York.

Competition between the New York Central and the Pennsylvania Railroad for the Western through traffic dated back as far as 1869, the year in which both systems secured, through consolidation with connecting roads, through lines to Chicago. Rates fell in one year from $1.80 to 25 cents per hundred pounds. After a time the managers of the two companies met, and schedule rates were restored. Rates were, at least outwardly, maintained until the Baltimore and Ohio and the Erie system entered Chicago, and the Grand Trunk made connections with Milwaukee and other lake points, and thus disturbed through rates. All efforts to maintain the level of the old tariffs, through agreements, proved now fruitless, for both the Baltimore and Ohio and the Grand Trunk found it to their interest to pursue independent policies, and refused to have their hands tied by an agreement with roads that were interested in continuing, if possible, the commercial supremacy of New York.

Rate skirmishing finally developed into open war in 1876, when fourth-class rates between Chicago and the Atlantic fell as low as 16 cents per hundred. This rate, however, was eclipsed in July, 1878, when wheat was carried from Chicago to New York for 10 cents per hundred. The existing conditions left no doubt in the minds of those familiar with railroad tactics that this war was simply the precursor of a gigantic combination between the trunk lines. An unsuccessful attempt to effect such a combination had been made before. In 1874 the managers of the Erie, Pennsylvania and New York Central met at Saratoga for the purpose of devising means for the suppression of competition in the trunk line traffic. This meeting, however, known in railroad history as the Saratoga Conference, was the first step toward the organization of a trunk line pool, although the conference did not lead to any immediate results, the Grand Trunk and the Baltimore and Ohio refusing to be bound by its decision. It was certainly no easy task to devise means to bring about an effective and permanent combination among five large through lines with greatly conflicting interests.

So far pools had never failed to suppress competition wherever they were organized. But in the past pools had, almost without exception, only attempted to control rates between common points. They accomplished their object by a division of the entire traffic or earnings from the traffic between common points. The schedule rates remained the same for all. But the traffic of the trunk lines brought a new factor into the problem. Here the rival routes did not terminate at the same points. It was contended by the Baltimore and Ohio that, whatever might be the facilities of Baltimore for exporting agricultural products, that port was at a disadvantage as compared with the more northern ports on account of the longer voyage and higher ocean rates to Liverpool, and that it could therefore not enter into a combination with the roads leading directly to New York and Philadelphia upon equal terms, since this would divert its legitimate share of the through business to those ports. The Grand Trunk, on the other hand, refused to enter the combination because, not having any direct Chicago connection, it feared that the enforcement of pool rates would materially diminish the volume of its business. As yet the railroad wiseacres did not seem to be equal to the emergency, and matters drifted along in the old channel. The rate war of 1876 gradually brought about an understanding among the belligerents. The competing roads accepted the terms offered, and with this a new principle entered into the science of pooling. Rates between Chicago and Baltimore were fixed somewhat lower than those between Chicago and Philadelphia, and in turn Philadelphia was allowed a small advantage over New York. This concession was made to equalize the difference in the ocean rates of the competing ports. These equalizing or—to use railroad nomenclature—differential rates were subsequently granted by pools to such roads as, on account of some disadvantage, could not compete with other members of the pool on equal terms. Thus the longest route was usually permitted to charge the lowest, and the shortest route the highest rate. This practice is in conformity with the principle of charging whatever the traffic will bear, but it is certainly devoid of every consideration of justice and equity. If the longer line can afford to carry freight at rates lower than schedule prices, no further proof is needed under ordinary circumstances that the regular schedule rates of the shorter line are exorbitant.

The concession of differential rates settled, at least temporarily, the difficulties that had arisen out of the east-bound traffic of the trunk lines. This arrangement did not, however, in any way affect the traffic moving in the opposite direction. The volume of west-bound freight is very much larger at New York than at any other of the Atlantic ports. In order to get its share of the business, each trunk line maintained an office in New York. These offices eagerly solicited business for their respective roads, and the freights which they received for transportation to the West would be forwarded either directly or by a circuitous route; but, the longer the route, the lower as a rule was the compensation asked for the service. Under these circumstances competition was brisk, and the profits realized were far from satisfying the cupidity of the competing lines. It was apparent to their managers that the competition in the west-bound traffic was similar to that formerly existing between Chicago and Mississippi and Missouri River points, which had promptly yielded to pools. The temporary adjustment of the more perplexing questions which had arisen out of the east-bound traffic now paved the way for a pooling arrangement for the west-bound freight. The Southern Pool, under the management of Albert Fink, had long attracted the attention of the trunk line managers. Its system of dividing the traffic, of reporting to a central office and of hearing and deciding complaints had enabled it to exert an almost absolute control over its members, to compel them to make honest returns and to prevent rupture and rebellion. It was believed that a pool of the trunk lines could not be effective or permanent unless organized upon the Southern basis and presided over by a trunk expert. Accordingly, when in 1877 an agreement for the pooling of the west-bound traffic was reached by the trunk lines, Mr. Fink was tendered the position of pool commissioner. Under the agreement reached the total tonnage of the west-bound business was divided in such a way that the Erie and New York Central roads each received 33 per cent., the Pennsylvania 25 per cent., and the Baltimore and Ohio 9 per cent. of it. If any road received more freight than was allotted to it by the pool, it delivered such surplus to the pool, or rather to such a road as the pool commissioner designated as not having received its allotment. The success of this pool from a railroad point of view made the trunk lines anxious to organize a similar pool for the whole east-bound traffic. It was proposed to control by such a combination the rates on all the east-bound traffic of the Northwest, by making Chicago the pooling center, fixing for it a schedule of rates and making the rates of all the railroad centers in the West and Northwest dependent upon it. The combination was to comprise more than forty companies, controlling over 25,000 miles of road. The scheme was tried for three months in 1878, but proved a failure, owing to the fact that nearly all of the many diverging interests sought their own advantage. The Eastern and Western trunk line pools were, through the efforts of their commissioner, successfully maintained, though even their harmony was occasionally marred by a short war precipitated by such members as would think themselves entitled to larger shares of the spoils. But a readjustment would invariably follow, and the expenditures of the war would be taxed up to the public.

After the failure of the gigantic Western pool which had been organized under the protectorate of the trunk lines, the companies which had composed it formed such local combinations as their individual interests dictated. It is doubtful whether during the five years immediately preceding the passage of the Interstate Commerce Law there was any junction of two or more roads in the United States which, except during the period of an occasional railroad war, had any competition in the transportation business. As has been shown before, discriminations without number were practiced between places and persons; goods were not unfrequently carried at a loss; but the general public was, as a rule, compelled to pay what the traffic would bear, or rather what the pooling roads thought it could bear.

It is claimed by railroad managers that pools are the only effective contrivances for checking ruinous competition among railroad carriers, and that they are therefore justifiable as a means of self-protection. This might perhaps be a valid argument if any attack were made upon the railroads which encroached upon their rights or endangered their existence, but if railroad companies are disposed to cut each other's throats, the public should not be made to pay the penalty of their depravity. As long as schedule rates are unreasonably high, railroads will be tempted to offer to certain shippers low secret rates; but as soon as all rates have been leveled down to a point where they will yield only a fair profit with good management, the inducement to cut below them is largely taken away. Pools, far from being a remedy for the evils of excessive competition, will in the end only aggravate the disease which they attempt to cure. The high rates which they maintain attract the attention of speculative men and lead to the construction of rival roads. While the traffic remains the same, the proceeds must then be divided among a larger number of carriers. Thus the construction of unnecessary roads, which has often been the subject of bitter complaint on the part of the older roads, is chargeable directly to their wrong policies.

One of the principal objections to industrial and commercial combinations is that they paralyze trade. Competition stimulates every competitor to offer the best at the lowest possible price. This increases the demand for the commodity, and both the producer and the consumer are in the end benefited by the operation of this law. On the other hand, combinations, or, what is the same, monopolies, increase the price, remove the stimulus to excellence, and reduce the demand, and thereby affect injuriously the producer and consumer alike. Competition in the railway service would mean an improved service and lower rates and would speedily be followed by a large increase of business.

Another serious objection to pooling is that it invariably leads to periodic wars, which unsettle all business, and but too often introduce into legitimate trade the element of chance. These wars give, moreover, to designing railroad managers an opportunity to enrich themselves by stock speculations at the expense of the stockholders, whose interests they use as a football for the accomplishment of their selfish ends. When rates are reduced to a right level, and are properly adjusted, and are equal to all, even railroad men will find no necessity for pools. The desire for such a combination is a desire to impose upon somebody, or some locality, or the public at large. The proposition to give legal sanction to pools, made by railroad managers, is preposterous; and even a pool to be approved by the Interstate Commerce Commission is out of the question, as it would cause the railroads to increase their efforts to control the appointment of the commission. However honest it may look on its face, however plausible may be the arguments produced in its favor, it should not be permitted.

There is no doubt but under the proposed pooling arrangement railroad interests, watered stocks and all, would be cared for, but there is every reason to believe that public interests would not be properly protected.

So long as servility by a member of the Interstate Commerce Commission to railroad influences serves as a stepping-stone to a high position in the employ of railroad combinations, with a salary of three or four times that of an Interstate Commerce Commissioner, so long will it be unsafe to permit such powers to be vested in that commission.

Pooling by railroads should not be permitted, if permitted at all, so long as representatives of speculative interests have a voice in their management, and not until all fictitious valuations are altogether banished from the equation, and until the roads are brought under complete Government control. There is no more necessity for pools among railroads than there is among merchants and manufacturers. The capital actually invested in railroads is now receiving larger returns than investments in other lines of business, and their incomes are increasing from year to year.

Every pooling combination of railroad companies for the maintenance of rates is a violation of common law. From time immemorial the law has stamped as a conspiracy any agreement between individuals to support each other in an undertaking to injure public trade. The Interstate Commerce Act reasserts this principle, and provides penalties for the maintenance of such combinations among railroad companies. If, in spite of this act, the evil still exists, it is no argument against the merits of the law, but it does prove that the machinery provided for its enforcement is insufficient. That railroad companies can be made to respect the law there can be no doubt; but much cannot be accomplished unless the people fully realize the magnitude of the undertaking and vest the Government with sufficient power to cope with an organized force whose total annual revenue is nearly three times as large as that of the United States. The discussion of the question how this may be done will be reserved for a subsequent chapter.

CHAPTER VIII.

RAILROADS IN POLITICS.

The question might be asked how the railroad companies for many years in succession have been able to prevent State control and pursue a policy so detrimental to the best interests of the public. One might think that in a republic where the people are the source of all power, and where all officers are directly or indirectly selected by the people to carry out their wishes and to administer the government in their interest, a coterie of men bent on pecuniary gain would not be permitted to subvert those principles of the common law and public economy which from time immemorial have been the recognized anchors of the liberty of the Anglo-Saxon race.

The statement that under a free government it is possible for a few to suppress the many might almost sound absurd to a monarchist, and yet is it true that for the past twenty-five years the public affairs of this country have been unduly controlled by a few hundred railroad managers.

To perpetuate without molestation their unjust practices and prevent any approach to an assertion of the principle of State control of railroad transportation, railroad managers have secured, wherever possible, the co-operation of public officials, and, in fact, of every semi-public and private agency capable of affecting public opinion. Their great wealth and power has made it possible for them to influence to a greater or less extent every department of the National and State governments. Their influence extends from the township assessor's office to the national capital, from the publisher of the small cross-roads paper to the editorial staff of the metropolitan daily. It is felt in every caucus, in every nominating convention and at every election. Typical railroad men draw no party lines, advocate no principles, and take little interest in any but their own cause; they are, as Mr. Gould expressed it, Democrats in Democratic and Republicans in Republican districts. The large means at the command of railroad companies, their favors, their vast armies of employes and attorneys and their almost equally large force of special retainers are freely employed to carry into execution their political designs, and the standard of ethics recognized by railroad managers in these exploits is an exceedingly low one.

It is a settled principle of these men that, if they can prevent it, no person not known to be friendly to their cause must be placed into any public office where he might have an opportunity to aid or injure their interests. The records of the various candidates of the principal parties for city, county, State and national offices are therefore carefully canvassed previous to the primaries, the most acceptable among the candidates of each party are selected as the railroad candidates, and the local representatives of the railroad interest in each party are instructed to use all means in their power to secure their nomination.

If none but candidates who are servile to the railroad interest are nominated by the principal parties, the election is permitted to take its own course, for, whichever side is successful, the railroad interest is safe. If, however, there is reason to believe that a nominee is not as devoted to their interests as the nominee of an opposing party, the latter is sure to receive at the polls whatever support railroad influence can give him. That a public official elected by the grace of a railroad manager is but too apt to become a tool in his hands needs no proof. Both gratitude and fear tie the average politician to the powerful forces which can control his political destiny.

The railroad manager, on the other hand, always kindly remembers his officeholding friends as long as they are loyal and in a position to serve him. Before the enactment of the Interstate Commerce Act there was every year a wholesale distribution of railroad passes among public officeholders and other prominent politicians. The pass was the token of the continued good will of the railroad dignitaries as the withholding of the "courtesy" was a certain indication of their displeasure. If the officeholder had personal or political friends whom he desired to have recognized, an intimation of this desire was generally sufficient to have the pass privilege even extended to them. And yet these favors were not bestowed indiscriminately. Thus the pass credit of a county official was more limited than that of an officer of the State, and the latter class were again rated according to their influence and rank. Furthermore, while annual passes were thus freely distributed among one class of officials, others could obtain them only by making special application for them. Members of the legislature would not unfrequently receive their supply of railroad passes before their certificates of election were issued, but legislative committee clerks and employes in the various departments of the State government were required to satisfy the railroad authorities that they were in a position to aid or to injure the railroad cause before their names were placed on the list of persons "entitled to the courtesy".

Of course the judiciary, as a coördinate branch of the government, could not well be slighted. Indeed, previous to the enactment of the Interstate Commerce Law, a judge would have regarded it an affront if he had not been furnished with passes by the various companies operating railroads in his district. It appears that the law has not entirely corrected this abuse, for only about two years ago the Chicago News made the discovery that nearly every judge in the city of Chicago traveled on passes. It is strange to what extent the pass often debased the judiciary. It was not unfrequent for judges to solicit passes for family and friends, and instances might be named where they demanded them in a wholesale way.

The impudent demands were usually honored by the railroad authorities, who reasoned that they could better afford to bear the shameless effrontery of the ermined extortioner than the damage which might result to them from adverse decisions.

A railroad pass, when presented by a public official or even by any public man, is now, in nine cases out of ten, a certificate of dishonor and a token of servility, and is so recognized by railroad officials. What equivalent railroad companies expect for the pass "courtesy" is well illustrated by the experience of an Iowa judge. This gentleman, who had been on the bench for years and always had been favored with passes by the various companies operating lines in his district, at the beginning of a new year failed to receive the customary pass from a leading road. Meeting its chief attorney, he took occasion to call his attention to what he supposed to have been an oversight on the part of the officer charged with the distribution of the passes. The attorney seemed to take in the situation at once. "Judge," said he, "did you not recently decide an important case against our company?" "And was my decision," replied the Judge, "not in accordance with law as well as with justice?" The attorney did not answer this question, but in the course of a few days the Judge received the desired pass. A few months later it again became the Judge's unpleasant duty to render a decision adverse to the same company. This second act of judicial independence was not forgiven, and the next time he presented his pass it was unceremoniously taken up by the conductor in the presence of a large number of passengers, and he was required to pay his fare.

Employes, while engaged in the legitimate business of their companies, should, of course, be transported free, but a great many persons receive passes and are classed as employes who never render any legitimate service for the company giving the pass, and by far the greater portion of passes are not granted from pure motives, but are given for the purpose of corrupting their holders. It arouses antagonism, because as a rule passes are given to people who are fully able to pay their fare and are denied to those who are least able to pay it. The passenger who pays his fare and then finds that a large number of his fellow-passengers travel on passes realizes that he is compelled to pay a higher fare that others may be carried free. He feels that he is unjustly discriminated against, and wonders why such discrimination is tolerated in a country whose institutions are founded upon the very principle of equal rights to all. A good anecdote is related which well illustrates this feeling. A farmer and a lawyer occupied the same seat in a railroad car. When the conductor came the farmer presented his ticket, and the lawyer a pass. The farmer's features did not conceal his disgust when he discovered that his seat-mate was a deadhead. The lawyer, trying to assuage the indignation of the observing granger, said to him: "My friend, you travel very cheaply on this road." "I think so myself," replied the farmer, "considering the fact that I have to pay fare for both of us."

But what must be a passenger's surprise when he finds that the judge who to-morrow is to preside at the trial of a case in which the railroad company is a party to-day accepts free transportation at its hands. A judge may scorn the charge that he is influenced by a railroad pass, but his fellow-passenger who has paid his fare cannot understand why the railroad company should give passes to one class of people and refuse them to others, if it does not consider one more than others to be in a position to reciprocate its favors.

In their endeavor to win over the courts, however, the railroads do by no means confine their attention to the judges. They are well aware that a biased jury is often more useful to them than a biased judge, and efforts are made by them to contaminate juries, or at least prejudice them in their favor. A prominent Iowa attorney, the legal and political factotum of a large railroad corporation, for years made it a practice to supply jurors with passes. In one instance, when it was shown in court by the opposing counsel that all jurors in the case on trial had accepted passes from the railroad company which was the defendant in the case, the judge found himself compelled to discharge the whole jury. The argument made by this counsel, in support of his motion that the jury be discharged, was certainly to the point. He showed that in order to have an equal chance for justice it would be necessary for his client to give each juror at least fifty dollars to offset the bribes given to them by the railroad company.

That it has always been the policy of railroad managers to propitiate the judiciary is a fact too generally known among public men to admit of contradiction. If a judge owes his nomination or election to railroad influences, railroad managers feel that they have in this a guarantee of loyalty. If, however, he acquires the ermine in spite of railroad opposition, every effort is made to conciliate the new dispenser of the laws. The bestowal of unusual favors, flattery, simulated friendship and a thousand other strategies are brought into requisition to capture the wayward jurist. If he proves docile, if his decisions improve with time and show a gradual appreciation of the particular sacredness of corporate rights, the railroad manager will even forgive him his former heresy and rally to his support in the future. But if he asserts his convictions, if he attempts to discharge the duties of his responsible office without fear or favor, if he can neither be corrupted nor intimidated, all available railroad forces will be marshaled against him in the future.

It cannot be surprising that, under such circumstances, there always has been a tendency among judges to be conservative and to give the railroads the benefit of the doubt in their decisions. Judges well know that railroad companies appeal almost invariably when the decision of a lower court is adverse to them, but private citizens only in exceptional cases. They also know that railroads never forgive adverse decisions, whether right or wrong, while private citizens, as a rule, accept the decision of the court as justice, and do not hold the judge responsible for its being adverse to them. Our judiciary is, and probably always has been, as incorruptible as the judiciary of any country in the world; but our judges are made of no better material than our legislative or executive officers. Weak men, in all stations, are influenced by wealth and power, and weak judges can always be found who will be led or forced from the path of duty so long as corrupt men are permitted to manage railroads and to remain in possession of a power only inferior to that of an autocratic ruler.

The influence which railroads exert extends from the lowest to the highest court of the land. Federal courts have more than once been successfully appealed to to give legal sanction to the perpetuation of gigantic frauds, or to frustrate attempts made by the individual States to place restrictions upon roads operated within their respective borders. Twenty years ago a Federal judge aided Mr. Gould in his notorious Erie transactions, and in more recent years a Federal circuit judge in the West threw the property of the Wabash Railroad Company, upon the application of its own directors, into the hands of receivers selected by its former managers without the knowledge or notice of its creditors, and issued orders for the management of the property which greatly discriminated in favor of certain bondholders and were so manifestly unjust that Judge Gresham, before whom the case was subsequently brought, did not hesitate to say to them that "the boldness of this scheme to aid the purchasing committee, by denying equal right to all bondholders secured by the same mortgages, is equaled only by its injustice." At the same time one of the counsel for the dissenting bondholders characterized these strange orders as "the highwayman's clutch on our throat, the robber's demand, 'Your money or your life.'"

The decision which the Supreme Court of the United States rendered in the Granger cases in 1876, affirming the right of a State to control railroad charges for the transportation of passengers and freight wholly within the State, was a serious disappointment to railroad men, for it was the first step toward wresting from them the power to arbitrarily control the commerce of the country. Ever since that time it has been their determined purpose to bring about, if possible, a reconstruction of the Federal Supreme Court, in order to secure a reversal or modification of the Granger decision. In the case of Peik vs. Chicago, 94th U. S., 176, the Supreme Court laid down the following broad principle of law: "Where property has been clothed with the public interest, the legislature may fix a limit to that which shall in law be reasonable for its use. This limit binds the courts as well as the people. If it has been improperly fixed, the legislature, not the courts, must be appealed to for a change." In one of the Granger cases the same court used the following language: "We know that this is a power which may be abused, but that is no argument against its existence. For protection against abuses by legislatures, the people must resort to the polls."

Fourteen years later, in the case of C. M. & St. P. R. Co. vs. Minn., decided in October, 1890, the same court rendered a decision so indefinite that the lawyers differed much in their opinions as to its meaning, and it appears that the members of the court who made the decision also differed in their opinions as to the meaning of the decision; for Justice Bradley said in his dissenting opinion, in which Justice Gray and Justice Lamar concurred, that the decision practically overruled Munn vs. Illinois; but the same court, in a case entitled Budd vs. New York, submitted in October, 1891, and decision rendered February 29, 1892, and opinion delivered by Justice Blatchford, in referring to the Minnesota case, after quoting the above statement from Justice Bradley, said: "But the opinion of the court did not say so, nor did it refer to Munn vs. Illinois, and we are of opinion that the decision in that case is, as will be hereafter shown, quite distinguishable from the present case."

It is thus apparent that this court has adhered to the decision in Munn vs. Illinois, and to the doctrines announced in the opinion of the court in that case, and those doctrines have since been repeatedly enforced in the decisions of the courts of the States.

Judge Brewer, whose zeal for the defense of corporate interests seems to amount almost to a craze, dissented. He said: "I dissent from the opinion and judgment in these cases. The main proposition upon which they rest is, in my judgment, radically unsound. It is the doctrine of Munn vs. Illinois reaffirmed. The paternal theory of government is to me odious. Justice Field and Justice Brown concur with me in this dissent."

It should be remembered that Justices Brewer and Brown were both appointed to the Supreme bench by President Harrison.

We have every reason to believe that, unless the people of the United States are on the alert, as railroad managers always are, there is, with further changes in the personnel of the court, danger of its deviating from the sound principles of law laid down in its decision in the Granger cases. Railroad attorneys have repeatedly been raised to seats in the highest tribunal in the land. So great is the power of the railroad interests, and so persistent are they in their demands, that, unless a strong public sentiment records its protest, their candidates for appointive offices are but too apt to be successful. Representatives of the railroads sit in the Congress of the United States, others are members of the national campaign committees of both of the great political parties, others control the politics of the States, and their influence reaches to the White House, whether its occupant is aware of it or not. Other interests in the past have succeeded in securing the appointment of biased men as judges of the Supreme Court who afterwards could always be relied upon to render decisions in their favor. Will the people profit by their experience, or will they be indifferent to the danger which surrounds them, until nothing short of a political upheaval can restore to them these rights of sovereignty, of which they have so insidiously been deprived?

Human gratitude is such that even high-minded men who, through the influence of the railroad interest, have been placed upon the Federal bench, find it impossible to divest themselves of all bias when called upon to decide a case in which their benefactors are interested. Such is the human mind that, when clouded by prejudice, it will forever be blind to its own fault. Even the members of so high a tribunal as the Electoral Commission which decided the presidential contest between Hayes and Tilden could not divest themselves of their prejudices; each one, Republican or Democrat, voted for the candidate of the party with which he had cast his political fortune.

Last January, in an address delivered before the New York State Bar Association at Albany, Mr. Justice Brewer reminded his hearers that the rights of the railroads "stand as secure in the eye and in the custody of the law as the purposes of justice in the thought of God." And further on they were told that "there are to-day $11,000,000,000 invested in railroad property, whose owners in this country number less than two million persons. Can it be that whether that immense sum shall earn a dollar or bring the slightest recompense to those who have invested perhaps their all in that business, and are thus aiding in the development of the country, depends wholly upon the whim and greed of that great majority of sixty millions who do not own a dollar? It may be said that that majority will not be so foolish, selfish and cruel as to strip that property of its earning capacity. I say that so long as constitutional guarantees lift on American soil their buttresses and bulwarks against wrong, and so long as the American judiciary breathes the free air of courage, it cannot."

Unfortunately judicial buttresses and bulwarks have not always been lifted against wrong. Judge Taney, like Brewer, supposed that it was left at his time for his court to preserve the peace and provide for the safety of the nation; but history has shown that we cannot depend upon that high tribunal for safety when it is controlled by weak or inefficient men.

When we consider what "that great majority" has done for this country in the past, and is doing for it at the present time, and especially when we contrast its sense of justice and right with the weakness and inability of some of its public servants, does it not seem to be a little presumptuous for them to assume that "the danger is from the multitudes—the majority, with whom is the power," and that, were it not for their superior wisdom and patriotic action, this great government of the people, by the people and for the people would be a failure?

Mr. Lincoln never feared "the whim and greed" of "that great majority," but he had at all times implicit confidence in the great mass of the people, and they in return had full confidence that no temptation of wealth or power was sufficient to seduce his integrity.

We cannot dismiss this subject without referring to a stratagem which railroads have in the past repeatedly resorted to for the purpose of removing from the bench judges of independent minds whom they found it impossible to control. This stratagem consists of a well-disguised bribe, by which a Federal judge is changed into a railroad attorney with a princely salary. The railroad thus gets rid of an undesirable judge and gains a desirable solicitor at a price at which they could well have afforded to pension the judge.

The following is a copy of a broker's circular letter sent to prominent bankers of Iowa, and shows that even the Clerk of the United States Court is not overlooked: