Popular Science Monthly/Volume 29/July 1886/Transportation and the Federal Government
By JOHN C. WELCH.
MOST of the great fortunes of the United States—those that are unduly great—are ascribed to the rapid development of the means of transportation and the facility with which those means have been centered in comparatively few hands. The general sense of the nation is that this concentration of power, of wealth, is an evil, and that it would be much better if we could have had the development of the transportation interests that we have had with a greater diffusion of the power and wealth that have attended them. The founders of our republic thought they were establishing civil institutions where enormous fortunes would be comparatively unknown. A hundred years have hardly passed—certainly not a long time in national life—when the largest individual fortune of the world is accredited to the United States, and there are others that approximate this in magnitude, and many of them dating back to less than one fifth of a century. In the matter of private wealth, we have clearly departed from the ideas of our fathers. In this departure is there adherence to the stern principles of republicanism with which our country started out, and have these growths been fortuitous, exceptional, easily swallowed up in the general growth and prosperity of the country, so that the spirit of our institutions is unchanged, and are these fortunes to be dissipated in an early succeeding generation, and not to be replaced by others of equal or greater magnitude and greater in number? The instincts of the nation are that danger lurks in any other solution of these inquiries than in the line of suppression of causes that have made these fortunes possible. Nor can the subject be dismissed on the ground that, in the development of the use of the physical forces of steam and electricity that this generation has seen, there is inherent this aggregation of wealth in few hands. The disproof of this is that in European countries that have enjoyed a like favorable development with ourselves in wealth, barring that which came from our virgin territory, such developments of the physical forces in their administration and the accompanying emoluments have not been centralized upon a few.
These administrative emoluments, in the case of railroads, accruing to so few, may be briefly summarized as follows:
1. The gratuitous distribution of stock to promoters and the construction of the railroad from the sale of mortgage bonds, and by defaulted bills for merchandise and labor.
2. Construction boards, corporations, committees, directors, made up of promoters who handle the cash realized from the sale of bonds and the credit which has been established for the property, and who are practically irresponsible, as they report from themselves as constructors to themselves as proprietary directors.
3. Express and other companies making use of the franchises of the original company and its road-bed, and taking to themselves the cream of the business.
4. Rebates, drawbacks, and the various devices by which favored shippers are allowed to usurp the business of the road, or the bulk of it, in certain channels, and in which the profit accruing to them from paying less freight is directly but the minimum advantage to them, as by it they may control the production, manufacture, and marketing, and real and speculative prices of an important commodity, and so, by eliminating competition and controlling speculation, draw enormous profits from the public that do not show at all in the simple handling of the articles as freight.
5. The property being corporate, and its ownership represented by negotiable stocks and bonds, and which have gone largely into the hands of the public, both by the natural and manipulated fluctuations which take place in the negotiable securities, those that are "outside" are at immense disadvantage compared to those that are "inside," and a perennial source of profit is at hand for the "few" who have reached the advantageous positions. By possessing inside knowledge of a number of leading companies, by making money in the loan market scarce or plentiful, the whole stock market can be "raided" for the benefit of one or more operators.
6. The wrecking, intentional or otherwise, of valuable property through accumulated mortgages and debts, and its re-establishment at a comparatively small cost to the new owners.
7. The consolidation of different companies: those that are continuous on the same lines; those that are parallel, and originally designed to be competitive, and those that radiate from a common center or do the business of a particular section. To make one company of two or more companies, to economize in administration, to make them probably more effective, to eliminate competition, has been generally unlooked for, and has added greatly to the economic position, and consequently to the value of the railroads as paying properties. While the consolidation may be meritorious, this has afforded the chief opportunity for "stock-watering," and is a field where Napoleons of finance have specially distinguished themselves and enhanced their wealth.
8. The large salaries paid high railroad officials is to a great degree only a legalized method of giving them an important part of the emoluments received. Their positions being free from the strain of personal competition and risk of capital, such as attend the business man, and without the pressure of social expenses and duties, such as rest upon the high government official, and frequently destitute of requirements of expert skill and professional knowledge, such as often command prizes of the highest kind, they are altogether without a parallel as remunerated positions.
Electric, gas, and other companies represent branches of transportation, of which railroads are the great representatives, and much is true of these companies that is true of railroad companies, and all stand on much the same ground regarding salaries paid to their high officials and in their general effects.
In contrast to these advantages accruing to railroad organizers and managers, the advantages that are supposed to accrue by the organization of railroad and all other stock companies, and to which prospectuses however flattering, are confined, are—
1. The profit on the investment through rise in the value of the property, and dividends to those who give valuable considerations for stocks and bonds.
2. The indirect benefit that will accrue to other properties, and the public convenience and advantage that will be derived from the operations of the company.
Where legitimacy begins and where it ends in such organization and management is a question of casuistry in particular cases, but there has been swerving enough from what is legitimate to make it the startling and pronounced feature of American commercial life for the past twenty-five years.
As the result of such illegitimacy, as the leading cause, what do we find?
We find Pelion piled on Ossa in the matter of private wealth.
We find the ideas of equality and simplicity on which the Government was founded stultified in the house of their friends.
We find fiery zeal and many successes in making millions and multiples of millions, and the hardships of acquiring a competence, increasing.
We find a class that exceed any class of officers in the Government in the importance of tenure and their power—imperium in imperio.
We find the individual less assertive than a generation ago of his independence, and the typical, prosperous citizen eats the bread of dependence upon a corporation, or controls one or more.
We find an important number of the influential members of the class that is and has been most influential in this country since the organization of the Government, lawyers—the only learned class active in affairs, officers of courts, the chief legislators and law-makers of the States and nation, the class alone from which the judiciary is chosen—"retained," made comfortable in their income year in and year out, without respect to the duties they perform or the offices they hold, barring judicial positions, by the powerful transportation companies.
We find citizens, officers, law-makers and judges overawed and corrupted by a power that yields no adequate subjection to the powers of the State.
We find a public sentiment alarmed at this situation, but almost despairing how to act helpfully.
We find threats to deal with the matter summarily, and with precedents that it is the unexpected that happens, with knowledge of the destroying power in human society of the ebullition of collected human passion, it is not the part of wisdom not to inquire into and to be indifferent to these threats; and such an inquiry is specially obligatory in a popular government like that of the United States.
The status of transportation—whether it is an affair of commerce or the body politic, or part of one and part of the other, and the ill defined thought and the unpronounced action upon it marks the first point of the difficulty.
Second, we have had a strong leaning to it as purely a matter of commerce.
Third, in the presence of a sentiment that has at length reached public conviction that it is partly at least an affair of the body politic, has arisen an embarrassment of how to treat it as such.
The embarrassment is greatly augmented in the fact that we are under a dual government of local and general authority, between which the lines are not clearly drawn, and which has been a burning question of politics, and many believe may be again fanned into a flame.
The civil war was latterly an affair of sections of the country, but the sentiment that led to it rested largely upon the question of local or general, State or national Government, and many have hoped that no serious point would ever arise again in this controversy. While the railroad problem is not a matter wherein jealousy has been engendered between the States and the General Government, it has been viewed in the light of a matter between local and centralized authority and so subject in some degree to the feeling or prejudice accentuated by the war, that was anterior to it and that largely had its growth as a national issue in the desire of the South to protect the institution of slavery. The result of that war was on the side of the General Government as an issue of local and General Government, as well as in the main issue, but on all sides the distaste is pronounced for more issues partaking of this character.
From the view that transportation, on the colossal scale on which we have railroad transportation in this country, is in some measure a matter of government, it is plain now, and seems as though it might have been plain at any time, that it is too wide in its scope to be treated successfully by the local State governments. There are two divisions to the subject from the national standpoint:
The position of the Government toward it as defined by the Constitution.
The general ground on which governmental action stands, making it necessary. Of what that action should be, this paper does not aim to treat.
1. The language of the Constitution pertaining to the subject is, "Congress shall have power to regulate commerce with foreign nations, and among the several States, and with the Indian tribes."
Applying this to railroads, the interpretation commonly made is that where a railroad company's chief means of transportation, that is its tracks, extend from one State into another, such railroad company comes constitutionally under the regulation of Congress. The framers of the Constitution certainly had no intention pertaining to transportation in its present form that helps us to interpret this clause of the instrument which they drew; their intention only pertained to the wider generalization—commerce, and must have been suggested by arrangements ordinarily entered into by adjoining States that had no Federal bond. Such arrangements were chiefly treaties. Hence the Constitution debars commercial treaties between States.
"Commerce among the States" is immensely wider in its scope than the mere transference of commodities or passengers over the line of adjoining States. Any railroad or other transportation company that enters into an arrangement with another transportation company for the movement of commodities or passengers from one part of the country to another (and this can not be done except by traversing different States) is a participant in commerce among the States, and so amenable to the clause of the Constitution covering such an act. To claim that a transportation company must actually perform the act of transference from one State into another is standing on the narrowest technical ground, and stands in a very subordinate and unimportant relation to the vital functions of commerce, and would be a poor thing to rest an important relation upon. The company that receipts for property, or sells tickets to passengers, to go out of the State in which these acts are performed, or which delivers property and accepts pay for the transportation of such, which came from other transportation companies and from other States, and which honors tickets for passengers sold by other companies in other States, certainly participates in commerce among the States whether its own property and track is wholly located in one State or not.
2. The special surprise that has taken place in regard to railroad transportation, outside of its mechanical effects (and this is true of other forms of transportation), is the tendency to centralization of management of interests that at the outset appeared to have no special connection or that were distinctly hostile. Railroads sprang up at first in subservience of local interests, and have been welded and are being welded together in subservience of general interests. The logic of economy and public advantage has overridden the individualities of men, the strifes of communities, the ignorances and prejudices of the public mind. Railroad management becomes less and less local, and more and more an affair dictated by events and beyond the grasp of any one mind or any number of minds that can act in unison. The great names in railroad affairs are not great by reason of overpowering genius, but by reason of the consolidations forced by events, the elimination of the men representing the smaller interests, and by the concentration of power in the hands of him who by his superiority over his associates or competitors, or by something fortuitous, becomes the representative of the combined interests.
The public mind does not grudge extraordinary rewards and power to genius and great public service, but it is galled to see such thrown by circumstances into the hands of men only actuated by personal aims. When such a condition of things grows into a national system; when in substance empires in domain have been parceled out to a few individuals, when we suspect that a few individuals are absorbing the growing wealth of the country, and perhaps more—the past acquisitions; when a plutocracy threatens to become greater than political parties, to wield more power and become superior to the chosen representatives of the people, it is high time to sift the character of their tenure, to inquire whether we have become a nation of Bombastes Furiosos in civil affairs; whether the Fourth-of-July oratory of past generations was a mere exercitation of the cerebrum and diaphragm of budding orators or traditionary wind-bags; whether if Providence has favored infants, drunkards, and the United States, as has been intimated by our European fellow-men, has it not withdrawn, or is it not rapidly withdrawing, its favors from the United States? While European nations have been growing toward a greater diffusion of civil rights, in the United States the sovereignty of the individual man has declined, and wealth and a class that wealth creates have become known at the polls and in the Legislatures; and the courts themselves, the very flower of the virtue and intelligence of the people, are strongly charged in some cases with contamination.
Consolidation, consolidation, consolidation, is the trend in the development of transportation. This is so, in spite of the competitive principle on which our nation has sought to stand. This nation has sought to look to no rulers of great and long-continued importance. It has stood on the ground of reinstating its rulers with power at short intervals; this emphasizes the idea that the sovereign power rests with the people. Next to this, the dominating idea on which we have rested has been that competition among our citizens would control our affairs. The theory of no-government—in that part of it which does not delegate large power to individuals—and the let-alone theory have gone hand in hand in our public policy. But, curiously or otherwise, the compact of thought of the fathers with its traditional acceptance by intervening generations does not hold pure in deed at this time. There was aggressive statesmanship in founding the republic; the statesmanship since that day has not been aggressive. The most distinguished names in civil affairs since that day have been Jackson and Lincoln, whose aggressiveness has been that of repelling innovations or evils; Lincoln broke the back of the slave-power and of the rebellion by his Emancipation Proclamation, and attained the highest point of inspiration and daring ever yet reached by an American statesman; but it was the heroic stroke of defense, not of aggression. No statesmanship arose, during the forty years that it was practically an issue, that was able and aggressive enough to keep back the war for slavery and secession, although it was proved immediately after the war was over that it was a war for an abstraction—an abstraction of selfishness, ignorance, and prejudice that was dissipated in the light of a new day, and an abstraction that might have been dissipated a generation earlier, without the bellows of war, with a different order of statesmanship.
While we may be proud of our founders, we need not be proud of all the statesmanship that has preceded us, nor accept the belief that a final orthodoxy has been reached in this country for the government of a great nation.
It is certainly not the highest order of society that it should be automatic; it is so in China. Accepting this to be the fact, we need not fight off innovations as though in them were the seeds of destruction.
What is it that now confronts us in the status of the transportation companies, the monopolies par excellence of this country?
The chief proprietors have life-leases of power, to be bequeathed to whom they will, while civil officers and legislators have to go frequently back to the people to be reinstated or deposed.
They have wealth beyond the dreams of avarice.
They build up a subsidiary class around them, who establish colossal fortunes by special rates, rebates, and drawbacks, and are exempt from the American principle of competition. Of this class the Standard Oil Company is the great type.
They possess great power over the incomes and savings of the people by controlling avenues of investment, and can and do greatly use this power to absorb such investments for themselves.
They have the power to tax commerce arbitrarily, and so tax it all they think it will bear, barred only by one strong influence, their internal jealousies.
They check personal ambition, independence, and enterprise, as success in very important fields of activity can only be obtained through them.
The rapidity and ease with which their fortunes have been acquired, the magnitude of their fortunes, their freedom from personal relations, and consequent freedom from sense of obligation to those from whom they derive their incomes, make them a class favored above any other that has ever existed.
And yet the spirit of much of our society is that there is no opposing power to draw upon; it is a case of laissez faire; the evil, if it be an evil, and in so far as it is an evil, will work itself out in time.
A representative of the class has drawn a parallel between himself and his class and the highest representatives of the political power of the people. The New York "Sun," of December 14, 1885, gives an account of an interview, between its reporter and Mr. Chauncey M. Depew, concerning the late Mr. Vanderbilt. "The Sun's" interviews, as is well known, are approved before publication by the person interviewed. Said Mr. Depew: "He had a poor opinion of politicians of all kinds. 'He said to me: What is there in politics to be desired? There is no money in it, and by going into it a man breaks up his business and is generally unable to resume it afterward. It lays him open to endless abuse and gives him no end of trouble. There is very little honor in it. Politicians never impressed me at all. I had three United States Senators in my office the other day, and I paid no more attention to them than if they were so many clerks. If they had been great shippers, great railroad men, or great business men of any kind, I should have been interested in them, but as it was I did not understand them. They do not impress me at all. Whenever I go to Washington they want to sell me a patent, or ask for a place on some of my roads, saying that they want to get out of politics.'"
Does not this reflect correctly the opinion of railroad magnates themselves, and in great degree popular opinion, that these magnates are greater than the highest representatives of the people—that there is no law to which, from the pinnacles of their greatness, they are amenable?
I have claimed consolidation as the special and remarkable feature of transportation, whether it be of railroads in any of their forms, telegraph-lines, gas-lines, and still other forms of transportation developed and developing. These consolidations are national and municipal in their character, tending to the bringing any one system, however extensive it may be, under a single management. Instances are almost too trite to be worthy of mention. In the greatest examples, we have the Western Union Telegraph Company; the Huntington, the Garrett, the Gould, the Vanderbilt, and other railroad systems; in municipal affairs, the consolidation of the elevated railroads of New York; in less degree, the consolidation of the ordinary street-lines, and the consolidation of the gas interests. How far do we have to look into futurity to see, judging by the past, the management of the railroads of the United States emanating from a single office?
In this service of transportation the individuals who are served cohere, they become the public; the transportation company, acting in its proper sphere, is the "servant" of the public as the President and all executive officers are servants of the public and of the people. If transportation companies favor one it does not end there, it injures somebody else; the favor received is an injury to the business competitor of the favored one. This is positive evidence, as the condemnations of public and private property for their use is negative evidence, that they exercise public functions.
If it was not profitable for individuals to establish the most approved means of transportation, it would be the duty of the State to establish them. On this theory the United States Government grants lands and its credit for the construction of the Pacific Railroads, individual States have built canals, and cities construct water-works and sewers.
All this, in connection with the character of the power of railroad and other transportation managers, means that they riot in the exercise of public power, and in the execution of public functions, the same as kings rioted in their power before it was satisfactorily demonstrated that their only or most legitimate use was to exercise for the interest of the public a delegated power.
The United States, standing on the ground of laissez faire more than any other civilized nation, has been the slowest in asserting itself in regard to the public functions of railroad companies, and, while we can not weigh accurately the value to us as a nation of over-construction and over-competition in railroads, presuming that there has been a value in them, we have had violence done to the spirit of our institutions; we have had the conditions of life, actual or relative, made harder to the average man; we have had suspicions cast upon the dictum of Lincoln, that this is a government of the people, by the people, and for the people; and we have seen the transportation corporations usurp or control the wealth, the honors, the Government (of their own specific and of a general kind) of the United States in a way that is abhorrent to the general sense of justice of civilized, or at least English-speaking, people. We have arrived at that position where we can not claim much advantage except our virgin soil, and what comes from our extent and isolation, over the governments of Europe that emerged into civilization from the dark ages, whose people have been afflicted with the theory of the divine right of kings, and who are, in one country or another, now loaded with primogeniture, entail, aristocratic orders in society, church government imposed upon state government, and a system so prejudicial to personal advantage that years of youth are condemned to participation in, or preparation for, war. The special kind of humanity that, it has been claimed, grew and would continue to grow on American soil, seems to have many departures from the boasted type, and we assimilate more and more to the older govern merits, or—if we go on as we are going shall we not be forced to admit it?—to the more steadfast types of civilization.
Already the Toryism of Great Britain is looking with admiring gaze to the Democracy of the United States, rapidly establishing, as it is, a privileged and a favored class, and such leaders as Chamberlain and Morley, on the crest of a forward movement, men of office and a great following, forge ahead on the line of equality and freedom such as the latter part of the nineteenth century has brought forward, and give small heed to the teachings and institutions of the United States.
Back of all these facts and postulates is the question, How far is transportation legitimately a subject of government, a branch of government—this as distinguished from being a matter merely of commercial enterprise? We see how easily transportation runs to one head, to one leadership. Competition does not keep this back; we have thoroughly tried the competitive principle, with all the predilections of our people and our Government in its favor, and it has failed; competition has been eliminated; nolens volens, the single leadership is arriving or has arrived. The question, then, is, Is that leadership to be held by a single individual intent on seeking his own fortunes, building up bulwarks of private fortunes around him; breaking down resentment to his bizarre position by travesties of courts, by legislators who smile and smile, and see their way to vote for him, by douceurs to the placable, by dollars at elections, by free rides, by telegraph-franks, by proprietary and subsidized newspapers, by retainers to high-roller lawyers, by political economy manufactured expressly for his benefit, by pillars of society droning of the dangerous tendency of the times, by laissez faire, by audacious self-assertion and robbery, by chameleon politics, by lofty public spirit, by smiles, lies, and entreaties, by the advertising generous hand, by the adulations of intelligence and virtue which millions of dollars so easily command, and—when all else fail—by sordid and brute force pressed home on the weak or galled spot of the body politic or the private interest? This is the commercial side of transportation as presented in the United States in the year of grace 1886. Would it not be well to see what there is in governmental transportation, to pay some attention to the experience of contemned monarchical governments, to cry a halt on the liberty that permits one or a few to absorb the substance of the state; to organize this, or commence it at least, by some of the simple forms of regulation that demand publicity, that ferret out discriminations that mean commercial theft and punish them, that stop vibrations between low and high rates in accordance with the whims of disturbed gall or exultant avarice of transportation rulers, that stop the prior knowledge of a favored few of what is to be, and so deprive them of enormous advantages in trade and transportation?
This is the way, or the most important step, in the limitation of wealth in the United States. Place no embargo on enterprise by a dead-line on which is written, "Thus far shalt thou go and no farther." Let the incentive of ambition, of avarice, if you will, be keen to the last, but hedge the opportunities so that no one man's opportunity greatly exceeds that of others; put the strain, not on getting a living, a competence, but on getting enormous multiples of these. Even then extraordinary fortunes may come, but they will come as the result of circumstances that could not be guarded against, and as the result of commanding and extraordinary talent that never comes in rafts (which would be implied if the present great fortunes were taken as a criterion of ability), and these sporadic fortunes will not be a threat to and a corrupter of society; they will not build up a separate class; they will be seen as only one of the unusual things in social development.
A government relation to and regulation of railroads is classed with a larger general regulation of society by Government than we have heretofore had, and which is in course of development in Germany under the leadership of Bismarck; which is constantly attaining greater ground in England in the popular mind under the leadership of Chamberlain and others, which is not strenuously objected to by Gladstone, and which bids fair, when that at present disturbed country gets rest from the exciting Irish question and has time to recover itself from the excitement of its recent foreign complications, to express itself in laws bearing on the internal polity of the country. The United States has not greatly entered the lists in this respect. It has not enlarged upon the principles of government incorporated by it in the Constitution; it has been almost the last to yield the principle of slavery, and now stands by, seeing Germany, at least, trying experiments in government which it has not ventured upon. It must be ranked at present among the conservative governments of the world. The national trepidation of "reforms" is greatest in Great Britain, where there is not the absolutism to hold them in check that there is in Germany.
Suppose we want to stand on the ground of incorporating no new principle in our Government, where does that leave the railroad problem? We see the consolidations that have taken and are taking place. Those consolidations mean centralization, and centralization has been the bête noir of the United States. The question is, Shall that centralization remain in private hands, with the various ills and violence to our institutions that we are positive of, or shall it come under subjection to, or be shared by, the agents and representatives of the people?
Certain things are natural in their regulation and government. The first of them is the war-power, which is the starting-point of civilization. Next is the preservation of order from disturbance by internal outbreaks and violence, which is the function of the police. There is the preservation of custom and the growth of equity, which is the function of the law, the courts, the Legislature; and there is the execution of the law, which is the function of the ruler and his assistants. A superior civilization aids commerce by the establishment of lighthouses, by improvements of rivers and harbors, constructs canals, looks after the public health in the establishment of quarantine, prevents the spread of infectious disease, provides cities with water and sewers, seeks to insure education among its citizens, regulates and controls the medium of exchange. The governments of civilization have been progressive in these regards. This country now confronts the problem of too great power in the hands of the wielders of transportation—they thwart the first principles of our Government, and the iron of their oppression has entered into the soul of our people.