One of the discriminations most complained of in early years was the charging of lower rates for a long haul than for a short haul on the same line—less for the whole than for a part.
For example, the rate from New York to Ogden was $4.65 per hundred, while $2.25 per hundred carried the same freight all the way from New York to San Francisco. The railroads charged more if the car stopped part way than if it went on to the Pacific,—more than twice as much, in fact, for the part haul as for the full distance, so that the extra charge for not hauling the car on from Ogden to Frisco was greater than for hauling it the entire distance from ocean to ocean. They seemed to be willing to take off half for the privilege of hauling the car another 1000 miles. These methods are still in practice.
The C. B. & Q. hauled stock from points beyond the Missouri River to Chicago for $30 a car, while charging $70 a car on much shorter hauls to points in Iowa. The Northern Pacific charged twice as much from New York to points a hundred miles or more east of Portland, as from New York clear through to Portland. Freight was shipped from New York State to Council Bluffs and then back to Atlantic, Iowa, 60 miles west of Council Bluffs on the Rock Island, for less than the charge direct to Atlantic. From Chicago to Kankakee, 56 miles, the Illinois Central charged 16 cents per cwt. for fourth-class goods, while it carried the same goods to Mattoon, 116 miles farther on, for 10 cents per cwt. The grain rate on the Pennsylvania Railroad from Chicago to Pittsburg was 25 cents in 1878, while the same road would carry the grain clear through from Chicago to New York for 15 cents. Glassware paid 28 cents a hundred from Pittsburg to Chicago, and only 14 cents from Philadelphia to Chicago, half the rate for nearly double the distance. A tub of butter from Elgin, Ill., to New York, 1000 miles, paid 30 cents, while the freight on the same tub from points 165 miles out of New York City was 75 cents. The railways put the farmers of Western New York further from market than their competitors in the West. By such arrangements as this it was claimed the railroads had caused a depreciation of $400,000,000 in the value of improved lands in New York, Pennsylvania, New Jersey, Maryland, and Delaware, while the area of improved lands in those States had increased 4,500,000 acres.[20]
The evils of unjust rates and railway favoritism for persons and places were earnestly discussed in the press, and in State legislatures, and in Congress. One of the examples of discrimination that caused much discussion in Congress was the Winona case. Cotton paid $1 a bale from Memphis to New Orleans, 450 miles; from Winona to New Orleans, 275 miles, travelling possibly in the same train with the Memphis bales, the rate was $3.25 per bale. Another example adduced in Congress was the 75 cent rate from New York to New Orleans, while points half way paid $1.00 for the same service.
In the early seventies (1872 and following years), Iowa, Nebraska, Minnesota, Kansas, and other States of the Middle West passed what are known as the “Granger laws,” fixing maximum rates and forbidding discriminations. Railroad commissions were also established in these States to control the roads, and it was hoped that these commissions, which grew out of the Granger agitation and were to represent the public interest and the people’s sovereignty in their relations with the railways, would be able to diminish greatly and perhaps abolish unjust discriminations. In this hope, however, the people were disappointed.
Speaking of this experience Governor Larrabee of Iowa said in 1893: “Every year seemed to add to the grievances of the public. Success greatly emboldened the railway companies. Discriminations seemed to increase in number and gravity. At many points in the western part of the State freight rates to Chicago were from 50 to 75 percent higher than from points in Kansas and Nebraska. A car of wheat hauled only across the State paid twice as much freight as another hauled twice the distance from its point of origin to Chicago. Minnesota flour was hauled a distance of 300 miles for a less rate than Iowa flour was carried 100 miles. Certain merchants received from the railroad companies a discount of 50 percent on all their freights, and thus were enabled to undersell all their competitors. The rate on coal in carload lots from Cleveland, Lucas County, to Glenwood was $1.80 per ton, and from the same point to Council Bluffs only $1.25, although the latter was about thirty miles longer haul. Innumerable cases of this kind could be cited. There was not a town or interest in the State that did not feel the influence of these unjust practices.”
This most famous and enlightening investigation of the early period was that of the Hepburn Committee of New York in 1879. The committee found that many shippers were paying two or three times, and in some cases five times, the rates paid by their rivals.
William H. Vanderbilt told the committee that, as a rule, all large shippers who asked for special rates got them. Among the men his road had helped to build up by special rates was A. T. Stewart, the great dry-goods merchant of New York. He had a rate of 13 cents from his factories over the New York Central to New York, while small concerns paid 20 to 40 cents for this same service. A big dealer in cotton cloth had a 20 cent rate, while others paid the regular 35 and 40 cent rate. Five grocery firms in Syracuse had a flat 9 cent rate instead of the published tariff of 37, 29, 25, and 18 cents, according to the class of goods. Four Rochester firms had a special rate of 13 cents against the regular tariff of 40, 30, 25, and 20 cents. Five firms at Binghamton and five at Elmira had rates from ⁵⁄₉ to ⅓ of the tariff. Three Utica dry-goods merchants had a rate of 9 cents and another had a rate of 10 cents, while the regular rates which the outside public paid were 33, 26, and 22 cents, according to class. Soap shipped by B. of New York to C. of Syracuse cost 12 cents freight per box if the freight was paid by the shipper in New York, but only 8 cents a box if the freight was paid by the consignee in Syracuse.
A report of the Erie Railroad showed 34 cases of special cut rates, and a New York Central report showed 33 examples. The books of the Central showed 6000 special rates granted during the first 6 months of 1880. About 90 percent of the Syracuse business and 50 percent of the entire business of the road was done on special rates.[21] It had given special rates to individuals and firms at 22 points on its line between Albany and Buffalo. The specials generally went down to about ⅓ of the scheduled rates to the same place, but in Syracuse a special agreement was unearthed in which the rate was so emaciated as to be only ⅕ of the size of the regular rate on first-class goods to which it applied.
The committee also found the long-haul discrimination in full bloom. Flour went from Milwaukee to New York for 20 cents, while the charge from Rochester to New York was 30 cents. On some goods the rate from New York to Syracuse, 291 miles, was 10 cents; New York to Little Falls, 217 miles, 20 cents; New York to Black Rock, 445 miles, 20 cents also. Syracuse must have had a strange fascination for the railroad men, to keep them from making a lower rate from the point 400 miles away than from the point 200 miles away, for they love long hauls. Goods were shipped from Rochester to New York and then from New York back over the same road through Rochester to Cincinnati more cheaply than they could be sent direct from Rochester to Cincinnati. W. W. Mack, a Rochester manufacturer, testified that he saved 14 cents a hundred in this way, and that he saved 18 cents a hundred in his St. Louis business in the same way. In both these cases the railroad company carried the goods 700 miles farther than the direct course for a charge considerably less than for the direct haul.
Butter was carried from St. Lawrence Co., N. Y., to Boston for 60 cents a hundred, while the rate from nearer stations was 70 cents, 80 cents, and even 90 cents at St. Albans, Vt., increasing as the distance decreased. The railroads appear to recognize the fact that happiness consists in the exercise of the faculties, and they wish to exercise their faculties to the utmost by securing long hauls even though the long rate may not leave nearly so much profit as the rate for the short haul.
Some of the worst discriminations of the early years were those connected with the oil business.[22] In 1872 the Oil Combine (then called the South Improvement Co.) secured a secret agreement from all the railroads running into the oil regions, first, to double freight rates on oil; second, not to charge the S. I. C. the increase; third, to pay the S. I. C. the increase collected from all other shippers. The rate to Cleveland was to be raised to 80 cents, except for the S. I. C., which continued to pay 40, and would receive 40 of the 80 paid by any one else. The rate to Boston was raised to $3, and the S. I. C. would receive $1.32 of it. The Combine was to have 40 cents to $1.32 a barrel rebate not only on their own oil which constituted only one-tenth of the business, but on all the oil their competitors shipped, so they would get $9 in rebates for every dollar they paid in freight. The S. I. C. were to receive an average of $1 a barrel on the 18,000 barrels produced daily in the oil regions. The rates were raised as agreed, but the excitement in the oil regions was so intense that mobs would have torn up the tracks of the railways if Scott and Vanderbilt and the rest had not telegraphed that the contracts were cancelled, and put the rates back. But some of the contracts afterwards came into court, and had not been cancelled at all. In 1874 the roads began gradually to carry out the plan that had been stopped by popular excitement in 1872.
In 1874 the Oil Combine had on some lines 10 different transportation advantages over its competitors, i. e., 49 cents direct rebate per barrel of refined oil, 22 cents rebate on crude-oil pipeage, 8½ percent of refined oil carried free (due to the method of calculating crude and refined equivalents), 13 cents a barrel advantage through possession of the railroad oil terminal facilities, 15 percent of by-products carried free, a rate to New York 10 cents a barrel less than the published rate on refined oil, and 15 cents on crude oil, exclusive use of tank cars, underbilling of carload weights, twenty thousand lbs. often for cars containing forty thousand or even sixty thousand lbs. of oil, or a lump sum per car regardless of excess weight, and a mileage payment from the railroads on the tank cars amounting in itself to a large rebate.
Nearly all the refineries of the oil region and of Pittsburg passed by sale or lease into the hands of the Combine in 1874–5.
W. H. Vanderbilt, and other prominent railroad men were stockholders in the Standard.
Frank Rockefeller, brother of John D., testified before a congressional committee July 7, 1876, that he believed Tom Scott, W. H. Vanderbilt, and other big railroad men shared in the oil rebates.
The New York Central and the Erie sold their terminal facilities for handling oil to the Standard Oil Co., thereby making it practically impossible for the roads to transport oil for the competitors of the Trust. The Pennsylvania Railroad also, under compulsion of a rate war, made a deal with the Standard by which the latter acquired the oil cars, pipe lines, and refineries of the Empire Company, a creature of the Pennsylvania Railroad.[23]
Vanderbilt told the Hepburn Committee, August 27, 1879, that “if the thing kept on the oil people would own the roads.”
After the Pennsylvania fought the Standard in 1877 and lost, the Combine paid 11 cents net freight (after deducting rebate) on each barrel of oil to New York, while its competitors paid $1.90 per barrel,[24]—a discrimination of 1600 percent by means of exclusive tank cars and rate arrangements. The trunk lines would not furnish competitors of the Standard with tank cars nor give them rates and conditions that would allow them to use their own tank cars.
The independents had to sell their tank cars or side-track them, because the Oil Combine prevented the railroads from giving them practical terms. At times when oil could have been shipped by the independents they could not get cars, though hundreds were standing idle on the switches.
So the independents had to ship their oil in barrels, paying a higher rate than on tank oil, and paying not only on the oil, but on eighty lbs. of wood in the barrel, making four hundred lbs. per barrel instead of three hundred twenty lbs. per barrel by tank.
Josiah Lombard of New York, the largest independent refiner of oil at the seaboard, testified as follows before the Hepburn Committee June 23, 1879:
“Tom Scott, President of the Pennsylvania Railroad Co., was questioned whether we could have, if there was any means by which we could have, the same rate of freight as other shippers got, and he said flatly, ‘No.’
“And we asked him then, if we shipped the same amount of oil as the Standard, and he said, ‘No.’
“We said that ‘if they had not sufficient cars to do the business with we would put on the cars.’
“Mr. Scott said that they would not allow that, and said that ‘the Standard Oil Co. were the only parties that could keep peace among the roads.’”
Cassatt, Vice-President, confirms the above and adds:
“The discrimination would be larger on a high rate of freight than a low rate of freight;” also admits that the “Standard Oil Co. had some 500 cars full here and at Philadelphia and Baltimore; that he had not discovered it until recently.”
Mr. Lombard further testified:
“Refineries were thus shut down for want of cars.
“Cassatt threatened, if the independents built the Equitable Pipe Line or any other lines of pipe [as follows]:
“‘Well, you may lay all the pipe lines you like, and we will buy them up for old iron.’
“R. C. Vilas, General Freight Agent of the Erie (and brother of Geo. H. Vilas, Auditor of the Standard Oil Co.), absolutely refused us cars, saying the Standard Oil Co. had engaged them all.
“J. H. Rutter, General Freight Agent, New York Central, would not furnish any cars, and also said, ‘We have no terminal facilities now.’”
A. J. Cassatt testified before the New York Committee that in 18 months the Standard Oil had received rebates amounting to $10,000,000.
In addition to many other advantages enjoyed by the Standard people the Pennsylvania Railroad in 1878 gave the Combine, through the “American Transfer Co.,” a “commission” of 20 cents a barrel on all shipments of petroleum,—not only on their own shipments, but on shipments made by the independents also. At the same time the New York Central and the Erie were paying the Standard “commissions” of 20 to 35 cents a barrel on all the oil shipped over those roads.
At one time the transcontinental lines charged $105 to return an empty “cylinder” tank car from the Pacific Coast to the Missouri River, while making no charge to the Standard for returning their “box” tank cars, each of which contained a cylinder, which, however, was set upright instead of being placed longitudinally; a distinction without a difference, but it served to make a discrimination of over $100 a car in favor of the Trust.
The railroads allowed the Oil Trust to stop its cars and divide up a tank load at two or more stations, but denied this privilege to the competitors of the Trust.
The Hepburn Committee reported (1879) that “the Standard Oil Co. receives rebates from the trunk lines, ranging from 40 cents to $3.07 a barrel on all oil shipments: That the trunk lines sell their oil-tank car equipments to the Standard and agree to build no more: That the Standard controls the terminal facilities for handling oil of the four trunk lines by purchase or lease from the railroads: That it has frozen out and gathered in refineries of oil all over the country: That it dictates terms and rates to the railroads: That the trunk lines have hauled its oil 300 miles for nothing to enable it to undersell seaboard refineries not then under its control: That it has succeeded in practically monopolizing the oil business: That the transactions of the Standard are of such character that its officers have been indicted, and that its members decline under oath to give details lest their testimony should be used to convict them of crime.”[25]
The oily people were able in one way or another to gain ascendency over all the railroads. “We made our first contract with the Standard Oil Company,” said Mr. Cassatt, “for the reason that we found that they were getting very strong, and they had the backing of the other roads, and, if we wanted to retain our full share of the business and get fair rates on it, it would be necessary to make arrangements to protect ourselves.”
The Combine used the railroads to ruin its rivals, and did it with a definiteness and vigor of attack never before attempted, and with a success that would have been impossible without the use of the railroad power. An example or two will make the matter clear.
Mr. Corrigan, an oil refiner of Cleveland, became so prosperous in the seventies that he attracted the attention of the Standard Oil, and in 1877 he began to have trouble. He could not get the crude oil he bought shipped to Cleveland, nor his product shipped away, with reasonable promptness. The railroads refused him cars, and delayed his shipments after they were loaded. And he was driven to lease and finally sell his works to the Standard, which had no difficulty in getting cars and securing prompt service.
George Rice became a producer of oil in 1865. A little later he established a refinery at Marietta, Ohio. In January, 1879, the freight rates on oil were raised by the railroads leading out of Marietta, and by their connections. In some cases the rates were doubled, while the rates from Cleveland, Pittsburg, Wheeling, and other points where the Combine had refineries, were lowered. The Baltimore & Ohio, the Pennsylvania, the Lake Shore, and all the other railroads involved, made the deal in unison, and after a secret conference of railway officials with the Standard Oil people. The change hurt the railroads, cut off their business in oil from Marietta entirely, but they obeyed the orders of the Standard nevertheless.
“What would be the inducement?” the freight agent of the B. & O. connection was asked.
“That is a matter I am not competent to answer,” he replied.[26]
Rice, finding himself shut off from the West, North, and East, developed new business in the South, but everywhere he went he was met with new discriminations, and even refusals in some cases to give him any rates at all. He could not ship to certain points at any price. In other cases the oil rates were jumped up for his benefit, and his cars were delayed or side-tracked by the railroads. Not satisfied with obstructing and in large part blocking the shipment of refined oil out of Marietta, the Combine did all it could to cut off Rice’s supply of crude oil from the wells. It bought up and destroyed the little pipe line through which he was getting most of his oil. Rice then turned to the Ohio fields and brought his oil in by rail over the Cleveland and Marietta Railroad. Under threat of withdrawing its patronage the Combine then compelled the road to double the rates to Rice and pay over to the Combine five-sevenths of all the freight the road collected on oil. Rice had been paying 17 cents a barrel from the oil fields to his refinery. His rate went up to 35 cents while the Combine paid only 10 and got 25 cents of each 35 paid by Rice.[27] “Illegal and inexcusable abuse,” said Judge Baxter when Rice took the case into court; and the Senate Committee was also emphatic in its condemnation. The case is in line with the whole history of the railroads in their relations with the Oil Combine, the remarkable fact in this instance being that the victim had nerve enough to fight the Combine. He took the facts to the Ohio Legislature, to the courts, to investigating committees of New York, and Congress, and rendered a great public service by bringing the ways of the railroads and the trust to the light of publicity. If all the victims of the Oil Combine had manifested equal pluck and public spirit, the evil we are discussing would long since have ceased to exist.[28]